The Central Bank of Cyprus (“CBC”) was established in 1963, shortly after the declaration of the independence of the Republic of Cyprus. Its establishment was based on the Central Bank of Cyprus Law of 1963 and the relevant articles of the Constitution of the Republic of Cyprus. Since then, the legislative framework governing the operation of the CBC has been materially amended twice to ensure compatibility with the Treaty on the Functioning of the European Union and the Statute of the European System of Central Banks and of the European Central Bank (“ECB”): in 2002 with Cyprus’s accession to the European Union, and in 2007 upon joining the euro area.
These amendments primarily aimed to align the legislative framework with European requirements and particularly to ensure the institutional independence of the CBC, with limited focus on the operational effectiveness of the Bank. However, the evolving developments in the global economy, the accelerating pace of technological advancement, the enhancement of European institutions, and the strengthening and broadening of the ECB’s role have highlighted the structural weaknesses in the governance model of the CBC.
As a result, the current governance model is outdated and does not adequately meet the requirements and obligations of a modern central bank that is a member of the Eurosystem (i.e. the network of national central banks of the euro area and the ECB). I am referring to significant weaknesses and institutional dysfunctions. Among other, I am referring to the excessive powers and responsibilities concentrated in the Governor, without the possibility of delegating them, even partially. I am also referring to the Board of Directors (non-executive in the majority), which lacks the authority to deal with Eurosystem matters, while the CBC’s responsibilities as a member of the Eurosystem are continuously expanding. It is noted that currently, more than 25% of CBC staff participate in ECB committees and working groups, with continuous support and contribution from colleagues from all General Directorates/Directorates of the Bank. Additionally, CBC representatives participate in the Supervisory Board of the Single Supervisory Mechanism and in the governing bodies of relevant European institutions, such as the European Banking Authority, the European Systemic Risk Board, the Single Resolution Mechanism, and the newly established European Authority for Anti-Money Laundering and Countering the Financing of Terrorism.
The CBC is entrusted with a pivotal and multifaceted role for the economy and society. In fulfilling its dual mission, it serves the public interest of Cyprus and contributes to the formulation of the common economic policy of the euro area.
Specifically, the Governor of the CBC participates in the ECB’s Governing Council, which formulates monetary policy for the euro area. The CBC is a member of the Single Supervisory Mechanism, which carries out the ECB’s banking supervisory duties, in cooperation with the national supervisory authorities. The CBC acts as the Macroprudential Authority to safeguard financial stability, as well as the Resolution Authority. It is responsible for licensing and supervising financial entities such as electronic money institutions, payment institutions, and credit servicers. In this context, it also acts to prevent money laundering. At the same time, it manages the Republic’s official reserves, performs the duties of the Government’s banker, oversees the smooth operation of payment and settlement systems and collects, processes, and disseminates statistical data. Finally, it promotes financial conduct and financial literacy and education.
The CBC’s participation in the Eurosystem is a privilege that offers significant benefits and opportunities, which the Bank has not yet fully leveraged. At the same time, it entails obligations, the fulfilment of which presents scope for further development. Geopolitical, economic, and technological developments, as well as the deepening of European integration call for enhanced agility and timely responsiveness by the CBC. Simultaneously, the CBC’s scope of responsibilities is expanding through new European legislation as well as through the assignment of additional responsibilities at the national level.
All of the above underscore the necessity for a substantial reform of the CBC into a modern central bank, through the adoption of a governance model that ensures flexibility, collegiality and enhanced operational effectiveness.
In my speech at the meeting of the Standing Committee on Financial and Budgetary Affairs regarding the State Budget for 2026, I referred to the proposal I recently submitted to the President of the Republic and to the Minister of Finance, for the modernization of the CBC’s governance model. The proposal includes legislative amendments aimed at establishing a governance structure that will enable the CBC to adequately fulfill its institutional role and mission, and to act with strategic insight, foresight and effectiveness against challenges. The proposed governance model is based on the lean and effective structure of the Deutsche Bundesbank, the Central Bank of Germany.
The proposed reform provides for a six-member Executive Board as the highest governing body, where decisions are made collectively, by majority vote. The Governor chairs the Board, with the Deputy Governor acting as Vice-Chair. Board members are appointed for a non-renewable seven-year term. As per the provisions of the Treaty on the Functioning of the European Union, the Governor is a member of the ECB’s Governing Council, as is currently the case.
The key advantages of the proposed model are the collective yet lean composition of the highest governing body, as well as its executive nature. This structure enables for the functional distribution of powers and responsibilities and more effective participation in decision-making within the institutional bodies of the Eurosystem.
The Central Bank of Cyprus is now entering its seventh decade of operation. The need for substantial reform is not just timely—it is imperative. This initiative represents a decisive step in strengthening the Institution, enabling it to respond more effectively to the challenges and opportunities that lie ahead. The ultimate goal is the enduring presence of the Central Bank of Cyprus as a pillar of stability and growth for the Cypriot economy, and as a reliable and valuable partner in the Eurosystem.