A 2007 World Bank report details a $16.5 million loan approved by the World Bank in July 2001 (reduced in June 2005 to $5.2 million) to assist Algeria in embarking upon a Financial System Infrastructure Modernization Project (henceforth referred to as the Project) starting 2002. The Project, per the report, focused on improving the financial system infrastructure, with a particular emphasis on modernizing the country's payments system. The Project aimed to establish a well-functioning real time gross settlement (RTGS) system along with regulations and guidelines governing future low-value payment systems, and effective and well functioning telecommunications links connecting the country's payments systems. The Project was completed in June 2006 and a new, automated, RTGS system became operational in February 2006. The Bank of Algeria (BoA) is in charge of the new systems' oversight and supervision, and has installed and tested all back-ups and security for its smooth and efficient functioning. The system was due to be evaluated by a joint World Bank/International Monetary Fund Financial Sector Assessment Program (FSAP) mission to Algeria during the first semester of 2007. However, there is no report of that evaluation yet available. There is also little further information publicly available to assess Algeria's compliance with the Core Principles for Systemically Important Payment Systems promulgated by the Committee on Payment and Settlement Systems.

General Overview

The 2007 "Implementation Completion and Results Report for Loan No. 7069-AL" by the World Bank gives details of a $16.5 million loan approved by the World Bank in July 2001 (partially cancelled in June 2005 to amount to $5.2 million) to assist the People's Democratic Republic of Algeria in embarking upon a Financial System Infrastructure Modernization Project (henceforth referred to as the Project) starting 2002. The Project, per the report, focused on improving the financial system infrastructure with particular emphasis on modernizing the payments system in the country. The stated objectives of the Project were: "(1) to put in place a more efficient enabling infrastructure for basic financial services, primarily by modernizing the inter-bank payments system for large-value transactions, the cornerstone of payments system development, and by developing norms and standards for future low-value payments systems, including an electronic clearing house; (2) to further improve the enabling infrastructure by modernizing the information and knowledge management systems of the Bank of Algeria; and (3) as a necessary complement and support to the payments and information systems, to provide supporting telecommunications infrastructure to improve the communications links between and among offices of the Bank of Algeria and the headquarters of key financial institutions and banks" (WB 2007, p. ii-iii). The Project aimed to establish a well-functioning real time gross settlement (RTGS) system, along with regulations and guidelines governing future low-value payment systems and effective and well functioning telecommunications links connecting the country's payments systems. The primary beneficiaries of the Project would be the Bank of Algeria (Banque D'Algérie, or BoA) and other commercial banks; while other beneficiaries include investors and foreign banks, the private sector, and the end users of the banking system. The Project was to be implemented by the BoA in accordance with a detailed Project Implementation Plan (PIP) and was to be continuously monitored by the World Bank through periodic BoA reporting and supervision missions by the World Bank. The Project was completed in June 2006.

The 2007 World Bank report on the completion of the Project states that a new, automated RTGS system has been operational since February 2006 and is extensively used as a vital element by the BoA, the commercial banks, and banking sector customers. Further, "the back-up, security (firewalls, antivirus) and oversight of the RTGS are in place and have been tested and the management of funds and speed of transactions have improved significantly" (p. 16). The 2007 World Bank report also mentions a joint World Bank/International Monetary Fund (IMF) Financial Sector Assessment Program (FSAP) mission to Algeria during the first semester of 2007, which would assess, inter alia, the impact of payment system modernization one year after the completion of the Project. There is no information of the stated mission's visit to Algeria, as of January 2008. The 2007 World Bank report finds that the system now processes 90 percent of the interbank transactions, which is much higher than the originally envisioned 70 percent. The system has settled 800 payments daily between February and October 2006, amounting to 670 billion dinars per day. The RTGS system also has settled transactions in the securities and money market.

The IMF's 2003 Financial System Stability Assessment (FSSA), published in 2004, noted that there were major payment inefficiencies at the time that imposed "major costs on financial intermediaries" (p. 17). The report observed that the payment procedures were largely manual and had many paper-based controls that delayed transactions. It contrasted these with the postal network, which it found to be cheaper and more reliable. Initiatives to improve payment system performance in the country had suffered setbacks due to inadequate leadership. The IMF recommended "forceful implementation of existing regulation, improved accounting standards, a modernized payment system, and more proactive supervision" (p. 6) to improve the health of the banking sector as a whole and reduce intermediation costs.

The 2007 IMF Article IV Consultation report states that as part of its technical assistance to Algeria, an expert from the IMF's Monetary and Financial Systems Department (MFD) visited Algiers (the country's capital) in May 2006 to advise on payment systems. The report notes that Algeria has drafted a unified regulatory framework to improve the payments system in the country, which is to be issued in the near future.

The 2001 World Bank report observes that the 1990 Law on Money and Credit defines the BoA's role and responsibilities. Per the report, the BoA's activities are conducted through eleven divisions, including Bank Supervision, Bank Credit and Regulation, International Financial Relations, Research, and Bank Training. In 2003 an Ordinance on Money and Credit was enacted to amend the 1990 law.

The Principles

I. The system should have a well-founded legal basis under all relevant jurisdictions.

II

The 2007 World Bank report states that, prior to the execution of the Project, the BoA and the commercial banks "had little exposure to the policy, legal and functional design issues associated with modem electronic payment systems" (p. 2) and therefore the government of Algeria had requested World Bank technical assistance in the development of the Project. The report also mentions that one of the objectives of the Project was to install "a well-functioning RTGS system, including associated regulatory systems, and the adoption of norms, standards and regulations for future low value payments systems" (p. 49). The regulatory framework, including regulations and account framework, governing the payment systems, was defined. Despite the information provided in the 2007 World Bank report, however, there is scant information publicly available addressing Algeria's actual compliance with this principle.

II. The system's rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

II

There is insufficient information publicly available as to Algeria's compliance with this Principle.

III. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

II

The 2007 World Bank report notes that the RTGS system is secure and sustainable and that the BoA has made adequate arrangements, including telecom infrastructure and regular backups of all transactions, to ensure the effective operation and maintenance of the RTGS system. Further, the report states that faster interbank fund transfers have resulted in improved liquidity risk management and reduced systemic risks. Also, "with increased security policy, more experience gained in operating the payment system, and continuous upgrading of the system with the development of new technology, the already low risk to the project outcome will be reduced even further" (WB 2007, p. 17). Nevertheless, there is scant information publicly available addressing Algeria's actual compliance with this principle.

IV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day. (Systems should seek to exceed the minima included in this Core Principle.)

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There is insufficient information publicly available as to Algeria's compliance with this Principle.

V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation. (Systems should seek to exceed the minima included in this Core Principle.)

II

There is insufficient information publicly available as to Algeria's compliance with this Principle.

VI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk.

II

There is insufficient information publicly available as to Algeria's compliance with this Principle.

VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

II

The 2007 World Bank report attests that the RTGS system is secure and sustainable and that the BoA has made adequate arrangements, including telecom infrastructure and regular backups of all transactions, to ensure the effective operation and maintenance of the RTGS system. The report further praises the RTGS system for enabling the optimization of the BoA's Treasury, the efficient management of funds by the commercial banks, and the promotion of trade and industry due to substantial reduction in delays and enhancement of the banks' reputation from the client's perspective. Nevertheless, there is scant information publicly available addressing Algeria's actual compliance with this principle.

VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy.

II

There insufficient information publicly available addressing Algeria's compliance with this principle. The 2007 World Bank report finds that the BoA has decided to recover the cost of the project through the RTGS system user fees. The BoA has chalked out the cost recovery mechanism and the fee structure for the system, and they are "consistent with international best practice" (p. 15). The participation fee is awaiting approval of the government.

IX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

II

The 2007 World Bank report finds a "strong participatory approach in the design of the new payment system in Algeria" (p. 43). However, there is little further information publicly available that directly addresses this principle.

X. The system's governance arrangements should be effective, accountable and transparent.

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There is insufficient information publicly available as to Algeria's compliance with this Principle.

A. The central bank should define clearly its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems.

II

The 2007 World Bank report finds that, at the end of the Project, the BoA has created a new department to monitor and supervise the RTGS system as well as retail payment systems in the country. Further, one division of this department has been placed in charge of the oversight of the payment systems. Nonetheless, there insufficient information publicly available addressing Algeria's compliance with this principle

B. The central bank should ensure that the systems it operates comply with the Core Principles.

II

The 2007 World Bank report notes that the BoA is monitoring the payment system well and is providing appropriate training to its staff for this purpose. Toward this end, the BoA has also transformed the Project Management Unit into the Directorate of Payment Systems and moved all the former's staff to the latter. The Directorate has three sub-directorates under it: (i) Operations; (ii) Technical Support; and (iii) Supervision of the Payment System. The report also notes that the BoA intends to finance the training and recruitment of staff to monitor the performance of the RTGS system. Nonetheless, there insufficient information publicly available addressing Algeria's actual compliance with this principle.

C. The central bank should oversee compliance with the Core Principles by systems it does not operate and it should have the ability to carry out this oversight.

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There is insufficient information publicly available as to the BoA's compliance with Central Bank Responsibility C.

D. The central bank, in promoting payment system safety and efficiency through the Core Principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.

II

There is insufficient information publicly available as to the BoA's compliance with Central Bank Responsibility D.