In the 1980s and 1990s, significant efforts were made in many African countries to orient central bank policy from promoting financial deepening towards promoting stability in prices and the financial sector. Yet over the past decade, many African central banks have increased their emphasis on financial deepening again. Much of the explanation for this change lies in the domestic sphere. There is however also an international dimension to the same process. This paper argues that a shift in the consensus among donors about the role of the state in financial sector development and donors’ power to influence policy help explain shifts in the orientation of central bank policy in poor African countries. This argument is based on a case study analysis of central bank policy in Uganda. The analysis provides the basis for broader propositions about the role of donors in shaping economic policy in aid dependent developing countries.
