Bangladesh Bank
Bangladesh Bank the central bank as well as chief authority to regulate the state’s monetary and financial system, was established in Dhaka as a body corporate vide the Bangladesh Bank Order, 1972 (P.O No. 127 of 1972) with effect from 16th December, 1971. Bangladesh Bank started functioning with all capital and liabilities of the then Dhaka branch of State Bank of Pakistan.
The paid-up capital of Bangladesh Bank is Tk. 30 million divided into 300,000 shares of Tk. 100 each that are fully paid up by the government. A Board of Directors comprising the Governor as the Chairman, one Deputy Governor and seven other members oversees the affairs of the bank. The Governor and the Deputy Governors of the Bank are appointed by the government for a period not exceeding five years and are eligible for reappointment. The Governors who have served since its inception are: A.N.M Hamidullah (1972-74); A.K.N Ahmed (1974-76); M. Nurul Islam (1976-87); Shegufta Bakht Chaudhuri (1987-92); Khorshed Alam (1992-96); Lutfar Rahman Sarkar (1996-98); Dr. Mohammed Farashuddin (1998-2001); Dr. Fakhruddin Ahmed (2001-2005); Dr. Salehuddin Ahmed (2005-2009); Dr. Atiur Rahman (2009-2016); Mr Fazle Kabir (2016-2022) and Mr Abdur Rouf Talukder (July 12, 2022-onwards).
The head office of Bangladesh Bank is at MOTIJHEEL and it has 9 branch offices, one in Dhaka city (SADARGHAT), and one each in Chittagong, Khulna, Rajshahi, Syhlet, Bogra, Rangpur, Mymenshing and Barisal. There are 60 departments in the head office.
Bangladesh Bank, as a central bank, reserve bank, and monetary authority, is the banking institution granted the exclusive privilege to lend the government its currency. Like a normal commercial bank, Bangladesh Bank charges interest on the loans made to borrowers, primarily the government, and to other commercial banks, typically as a ‘lender of last resort’. However, a central bank is distinguished from a normal commercial bank because it has the monopoly on creating the currency, which is loaned to the government in the form of legal tender. It is a bank that can lend money to other banks in times of need. Its primary function is to provide the nation’s money supply, but more active duties include controlling subsidized-loan interest rates, and acting as a lender of last resort to the banking sector during times of financial crisis (private banks often being integral to the national financial system). Bangladesh Bank, as a central bank, also has supervisory powers, to ensure that banks and other financial institutions do not behave recklessly or fraudulently.
Vision and Mission The vision of the Bangladesh Bank (BB) aspires, through ensuring the quality of services and the competence of its staff, shall operate as a modern, dynamic, effective, and forward-looking central bank to manage the country’s monetary and financial system with a view to establishing the internal and external value of Bangladesh Taka conducive to rapid growth and development of the economy. To uphold the vision, BB’s mission is to manage the monetary and credit system of Bangladesh with a view to establishing domestic monetary value and maintaining a competitive external per value of the Bangladesh Taka towards fostering growth and development of country’s productive resources in the best national interest. In order to achieve these objectives BB mainly (i) Conducts monetary policy and (ii) Regulates banks and NBFIs (Non-banking Financial Institution) to develop a sound financial system.
Monetary Policy is a set of rules that aims at regulating the supply of money in accordance with predetermined goals or objectives. Monetary policy plays a very dominant role in altering the economic activity and the price level in a country. So, it should be very carefully formulated and implemented in achieving the goals and objectives outlined in the Bangladesh Bank Order, 1972 as: (1) Price stability both internal and external; (2) Sustainable growth and development; (3) High employment; (4) Economic and efficient use of resources; and (5) Stability of financial and payment system.
Core Functions BB as the central bank of Bangladesh executes all the functions that a central bank traditionally performs elsewhere in the world. The core functions of BB are: (1) BB formulates and implements monetary policy aiming at stabilizing domestic monetary value and maintaining competitive external per value of taka for fostering growth and development of country’s productive resources in the best national interest; (2) BB formulates and implements intervention policies in the domestic money market and foreign exchange market. BB intervenes the money market with some policy instruments such as (i) open market operation (treasury bills/bonds, repo, reverse repo auctions), (ii) variations in reserve ratios such as cash reserve requirements (CRR) and statutory liquidity ratio (SLR), (iii) secondary trading, (iv) discounting rate/bank rate, and (v) moral suasion; (3) BB monitors and supervises scheduled banks and non-bank financial institutions (NBFIs) that include off-site supervision and on-site supervision in order to enhance the safety, soundness, and stability of the banking system to ensure banking discipline, protect depositors’ interest and retain confidence in the banking system; (4) BB holds sole responsibility of the management of international reserve representing aggregate of BB’s holding of gold, foreign exchange SDR, and reserve position in the IMF; (5) BB, as the central bank of Bangladesh reserves sole responsibility to issue bank note; (6) BB acts as a clearing house for the scheduled banks to clear and settle inter-bank payments arising through drawing cheque, drafts, bills etc. to one another; (7) BB acts as a banker to the government; (8) BB functions as a lender of the last resort for the government as well as for the country’s scheduled banks; (9) BB acts as an advisor to the government; (10) BB directs the growth expediting programs for the national interest.
Additionally, BB’s functions include some other promotional activities such as development of new instruments, guidelines for money and financial market participants, providing training to the banks and NBFIs, monitoring and encouraging corporate social responsibilities (CSR) executed by banks and NBFIs and so on.
Exchange Rate Policy Towards liberalization of foreign exchange transactions, a number of measures were adopted since 1990s. Bangladeshi currency, the taka, was declared convertible on current account transactions (as on 24 March 1994), in terms of Article VIII of IMF Article of Agreement (1994). As Taka is not convertible in capital account, resident owned capital is not freely transferable abroad. Bangladesh adopted Floating Exchange Rate regime since 31 May 2003. Under the regime, BB does not interfere in the determination of exchange rate, but operates the monetary policy prudently for minimizing extreme swings in exchange rate to avoid adverse repercussion on the domestic economy. In the forex market banks are free to buy and sale foreign currency in the spot and also in the forward markets.
Reserve Management Strategy Bangladesh Bank (BB) is empowered by section 7A of Bangladesh Bank Order, 1972 (President’s Order No. 127 of 1972) to hold and manage the official foreign exchange reserve of Bangladesh. It maintains its foreign exchange reserve in different currencies to minimize the risk emerging from widespread fluctuation in exchange rate of major currencies and very irregular movement in interest rates in the global money market. BB has established Nostro account arrangements with different central banks. Funds accumulated in these accounts are invested in treasury bills, repos and other government papers in the respective currencies. It also makes investment in the form of short-term deposits with different high rated and reputed commercial banks and purchase of high rated sovereign/supranational/corporate bonds. Forex Reserve and Treasury Management Department of BB performs the operational functions regarding investment, which is guided by investment policy set by the BB’s Investment Committee headed by a Deputy Governor. The underlying principle of the investment policy is to ensure the optimum return on investment with minimum market risk.
BB exercises its power in liquidity management/controlling credit through traditional and non-traditional ways. A very common method is the change the Minimum Reserve Rate except bank rate and open market operation. BB occasionally regulates/manages foreign exchange transactions in order the keep stability of the exchange rate and also ensure transfer of foreign currencies through formal and proper channels. By considering government policies BB maintain supply of foreign currencies. BB is empowered to manage the total international reserve, which includes gold reserve, foreign exchange reserve, SDR and reserve with IMF. BB represents Bangladesh Government in World Bank, IMF, Asian Clearing Union, Asian Development Bank and other international financial institutions.
Deposit and Insurance the Deposit Insurance Scheme (DIS) was introduced in Bangladesh in August 1984 to act as a safety net for the depositors aiming at minimizing the risks of loss of depositors’ fund with banks in which all the commercial banks including foreign banks and the specialized banks operating in Bangladesh are the members of this scheme by compulsion as provided under Article of Bank Deposit Insurance Act 2000.
The DIS is designed to minimize the risks that the depositors suffer a loss out of placing funds with a bank. The purpose of DIS is to help to increase market discipline, reduce moral hazard in the financial sector and provide safety nets at the minimum cost to the public in the event of bank failure. The direct rationale for the deposit insurance is customer protection. The indirect rationale for deposit insurance is that it reduces the risks of systemic crisis, involving, for example, panic withdrawals of deposits from sound banks and breakdown of payments system.
Bangladesh bank has adopted a system of risk-based deposit insurance premium rates applicable for all scheduled banks effective from the half year January-June 2007. According to new instruction regarding premium rates, problem banks are required to pay 0.09 percent and private banks other than the problem banks and state-owned commercial banks are required to pay 0.07 percent where the percent coverage of the deposits is taka one hundred thousand per depositor per bank.
With this end in view, BB has already advised the banks for bringing DIS into the notice of the public through displaying the same in their display board.
Research and Publications Bangladesh Bank brings out a number of research and statistical publications. Major publications include the Annual Report, the Monetary Policy Review, the Financial Sector Review, the Bangladesh Bank Quarterly Report, and Monthly Report- Major Economic Indicators, Monthly Economic Trends intended to inform policy makers, market participants and general public. Research, Policy Analysis Unit, IT, Monetary Policy and Statistics Departments jointly prepare these reports, with support from the Department of Printing and Publications. The Information and Public Relations Division (IPRD) of Governor’s Secretariat helps handling media briefings and liaison and issuance of press releases, etc.
BB’s websites (www.bb.org.bd and evsjv‡`ke¨vsK.evsjv) now serve as important communication platforms, allowing continuous instant access to information on roles, responsibilities and policy approaches of the central bank. The websites contain circulars issued by the BB, economic indicators, BB’s publications and reports including important speeches/presentations by the Governor.
Financial Inclusion and Growth Expediting Programs Basic financial services such as deposit, credit etc. is considered as entitlement of all people in a society. Inclusiveness of a greater segment of people in financial system is prerequisite for economic development of a country like Bangladesh to facilitate employment to ease credit facilities. Despite a large number of bank branches and micro finance institutions in our country, a large segment of our population particularly rural poor have limited access to banking services. Bangladesh Bank has started to find a way out of this situation and services like deposit, small credit etc. which need to be made available to the common people for the sake of POVERTY reduction and people’s involvement in national economic activities. Bangladesh Bank and the Government of Bangladesh (GOB) have adopted several remedial measures to bridge these gaps in financial inclusion.
Bangladesh Bank has introduced refinance schemes for banks against their loans to Small and Medium Enterprises (SMEs) multilateral development partners such as the IDA and ADB are supplementing BB’s refinance programs with their co-financing lines. BB’s refinance schemes for banks against their loans to SMEs have been expanded from Taka 100 crore to Taka 600 crore for ensuring credit availability to this sector. To widen and strengthen SMEs, recently Bangladesh Bank has formed SME and Special Programs Department; to enhance investment in this sector especially to help women in increasing their contribution to industrialization, BB is detecting the hindrances on the way. In this regard it has been made mandatory that at least 15% of the credit will have to be disbursed among women entrepreneurs. A total of Tk. 24,000 will be disbursed in the sector in the current fiscal (FY 2009-10) through the banking channel.
BB has announced its Annual Agricultural/Rural Credit Policy and Program for FY 2009-10 of Tk.11,500 crore and to ensure institutional credit facility for the sharecroppers, Bangladesh Bank for the first time has introduced a refinance scheme of Tk.500 crore which will be disbursed using NGO linkages. To implement agricultural credit program BB has formulated a three-stage monitoring system. Besides, the farmers are now allowed to open their bank account by 10 taka only.
Bangladesh Bank is increasing its concentration on infrastructural development because it’s a vital prerequisite for economic development. A Taka 200 crore refinance line has been introduced in FY-2009-10 against bank loans for environment friendly investments in solar energy, biogas plants and effluent treatment plants (ETP). Already Participatory Agreement with some banks for receiving refinance facility for loan against ETP is under process. In addition, commercial banks have been persuaded to invest in power generation plant under Public Private Partnership (PPP). In the meantime, BB itself has established a 20-kilowatt solar panel.
In addition, BB is always urging the financial institutions to be more committed to the society by fulfilling their corporate social responsibilities (CSR) because the ultimate target of any business activity should be the maximization of social welfare. According to vision 2021 of present government the poverty has been targeted to be reduced to lower than 15%. As a short-term measure to achieve this target BB authority hopes the credit facilities for agriculture and SMEs will be very effective and will ease the implementation of long-term strategies.
Nevertheless recently, BB has adopted the Strategic Planning in accomplishing 16 core objectives by 2010-14: (1) Revisit the current monetary policy framework to ensure continuing effectiveness of monetary polices; (2) Strengthen regulatory and supervisory framework to enhance financial sector resilience and stability; (3) Further deepen financial markets in Bangladesh; (4) Financial inclusion and broadening of access; (5) Developing more efficient currency management and payment system; (6) Enhancind regulatory and supervisory framework against money laundering; (7) Introducing separate and comprehensive guideline and supervision for Islamic banking; (8) Developing more efficient management of government domestic debt; (9) Streamlineing and transforming data reporting, processing and dissemination through full fledged ICT framework; (10) Full automation of credit information bureau (CIB); (11) Closing the existing gaps in legal empowerment of BB in different functional areas; (12) Attracting, retaining and developing people ensuring sound organizational development; (13) Strengthening Risk-based internal control to add value to the Risk Management Process in Bangladesh Bank; (14) Promotjng CSR activities and preparedness for climate change in Bangladesh with conducive policy direction; (15) Developing effective channels for communicating central bank’s policies and initiatives to stakeholders to enhance effectiveness of implementation; and (16) Creating a ‘Strategic Planning and coordination Unit as a process owner of BB strategic plan.
In order to improve the quality of customer service of Bangladesh Bank modernization program for the cash department has been initiated, such as setting up CCTV as part of improved security system, help desk, separate counter for women, aged and physically handicapped people, using sophisticated machine for note processing sorting, banding etc. central display board for displaying up-to date directives and citizen charter and many others.
Therefore, through reducing poverty and accelerating economic activities with satisfying the credit needs, the recent initiatives of BB in bringing the people outside the bank under banking services in line with financial inclusion is likely to contribute to economic development of Bangladesh.
Economic Growth one of the key objectives of BB is to promote and maintain a high level of production, employment and real income of Bangladesh and to foster growth and development of the country’s productive resources for national interests. Therefore, BB as the regulator of country’s financial system performs its responsibilities with the view to achieve its objectives that impacts directly and indirectly on country’s financial growth, in particular, monetary, fiscal, and economic growth. The yearly economic/financial growth chart is given below:
Bangladesh Bank has correspondent relationships with one international and 8 foreign central banks viz., the Federal Reserve Bank of New York, Bank of Canada, Bank of England, Bank De France, Deutsche Bundes Bank, Bank of Japan, Svereges Riks Bank of Stockholm, Reserve Bank of India and the Bank for International Settlements, Basle. Besides, Bangladesh Bank has now invested its foreign exchange reserves with 14 banks at different international financial centres.
To reduce the huge costs of printing currency notes in foreign countries Bangladesh Bank had initiated a Security Printing Project, which was converted into a limited company of the name The Security Printing Corporation (Bangladesh) Ltd. on 18th October 1992. The corporation is now working as a commercial concern and prints all currency and bank notes in Bangladesh. Other security papers, such as judicial and non-judicial stamps, PRIZE BONDs, revenue stamps, postal envelope and stamps, band rolls for customs and excise department, and cheque books of different private banks in Bangladesh are also printed by this company. The company however, does not have a minting plant and the country still remains dependent on foreign mint companies for minting the coinage.
BB’s Acts, Laws, Regulations, and Guidelines A set of acts, laws, regulations, and guidelines have been enacted and promulgated time to time since BB’s establishment which helped BB to perform its role as a central bank particularly, to control and regulate country’s monetary and financial system. On the other hand, regulations and guidelines broadly include Bangladesh Bank Regulations and Foreign Exchange Regulations. [Muhammad Abdul Mazid]
