Central bank intervention in the money market has become the main instrument of monetary policy. Since 1994, interest rates have been liberalized (with only small exceptions), and the mandatory acquisition of public debt instruments abolished. The new banking law provides for the creation of investment banks and a gradual introduction of universal banking. To reinforce the financial position of the banking system, prudential regulations were upgraded, banking supervision improved, and the capital base of several institutions strengthened.

Other efforts support the development of financial markets. Certificates of deposit, commercial paper, investment certificates, and treasury bills have been introduced and the creation of investment funds has been encouraged. Also, in March 1994, an interbank foreign exchange market was established. With large participation by the banks, 80 percent of all foreign exchange transactions now take place outside the central bank.

To support rapidly increasing equity activities, the reform of November 1994 separates the activities of the stock exchange, which has become a private entity, from the supervisory functions, which are entrusted to a new independent institution. The volume of transactions on the stock market rose from D 162 million in 1993 to D 531 million in 1994, and the volume of stocks traded increased from 4 million to 15 million during the same period. Capitalization rose to 15.8 percent of GDP in 1994 as compared with 6.8 percent of GDP in 1993.