The Bank of Uganda was established on 16 May 1966 as the bank of issue, undertaking the function previously served by the East African Currency Board in Nairobi. The government-owned Uganda Commercial Bank (UCB) provided a full commercial banking service, complementary to and in competition with other commercial banks in the country. Uganda was rocked by a banking scandal in 1989. Lack of public confidence in the system was compounded by a prolonged period of high inflation, which caused rapid erosion in the value of money, and by the liquidity and insolvency problems of some banks. These problems remained unresolved through the 1990s.
In 1998, the financial sector included the Bank of Uganda together with 18 commercial banks, 2 development banks. In addition to the UCB, major commercial banks included Crane Bank Limited, Stanbic, Bank of Baroda, Standard Chartered Bank, Nile Bank, and Barclays Bank. The Uganda Development Bank is a government bank that channels long-term loans from foreign sources to Ugandan businesses. The East African Development Bank, the last remnant of the defunct East African Community, obtains funds from abroad for Kenya, Tanzania, and Uganda.
The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $517.6 million. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $938.8 million. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 9%.
The government supported the establishment of a stock exchange in Kampala, and it inaugurated the Capital Markets Authority in 1995/96. The initial stage of capital market development concentrated on the interbank market and the sale of Treasury bills, which the Bank of Uganda started selling in 1992 at weekly auctions. The exchange was officially opened in 1997, but in 1999, had not been active since inception.