Bangladesh Bank

AN ASSIGNMENT ON

MONEY AND BANKING

SUBMITTED TO M. KAZI

TAMIM RAHMAN

Lecturer Department of Agricultural Economics and Rural Sociology Faculty of Business Administration and Management

SUBMITTED BY Shofiq Uddin khan Reg. No. 00682; Roll No. 023 Level-3; Semester-1 Faculty of Business Administration and Management

Date of Submission: 26 April 2008

PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY 1

Contents Topics

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Introduction History of Bangladesh Bank

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Objectives of Bangladesh Bank

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Visions of Bangladesh Bank

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Missions of Bangladesh Bank

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Functions of Bangladesh Bank

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Current Board of Directors

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Current Executive Staff

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Conclusions

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Introduction Bangladesh Bank the central bank and monetary authority of the country. It came into existence under the Bangladesh Bank Order 1972 (Presidential Order No. 127 of 1972) which took effect on 16 December 1971. Through this order, the entire operation of the former State Bank of Pakistan in the eastern wing was transferred to Bangladesh Bank. The powers and functions of Bangladesh Bank are governed by various laws and acts including the Banker's Books Evidence Act 1891, Insolvency Act 1920, Banking Companies Ordinance 1962, Bangladesh Bank Order 1972, Foreign Exchange (Regulation) Act 1986, Money Loan Court Act 1990, Banking Companies Act 1991, Financial Institutions Act 1993 and Rules 1994, Companies Act 1994 and Bankruptcy Act 1997. History of Bangladesh Bank After the liberation war, and the eventual independence of Bangladesh, the Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of the country, and named it Bangladesh Bank. This reorganization was done pursuant to Bangladesh Bank Order, 1972, and the Bangladesh Bank came into existence with retrospective effect from 16th December, 1971. The highest official in the bank is the Governor (currently Salehuddin Ahmed). The Governor chairs the Board of Director. The Executive Staff, also headed by the Governor, are responsible for the day to day affairs. Objectives of Bangladesh Bank As the central Bank of Bangladesh, the broad objectives of the Bank are: a) To regulate currency issuance and to keep foreign exchange reserves; b) To manage the monetary and credit system of Bangladesh with a view to stabilizing domestic monetary value; c) To preserve the par value of the Bangladesh Taka; d) To promote and maintain a high level of production, employment and real income in Bangladesh; and to foster growth and development of the country's productive resources. Visions of Bangladesh Bank The Bangladesh Bank (BB), 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 stabilizing the internal and external value of Bangladesh Taka conducive to rapid growth and development of the economy. 3

Missions of Bangladesh Bank To uphold the vision and in pursuant with the Bangladesh Bank Order of 1972, Bangladesh Bank’s mission is to promote and maintain macroeconomic and price stability through: Formulating and implementing appropriate monetary policy consistent with the country’s national development goals; Pursuing prudent policies to ensure stable internal and external value of Taka; Identifying policy priorities for implementation by the Government through assessing the transmission channels and the interactions of monetary policy with fiscal, exchange rate, and other macroeconomic policies and their impact on the economy; Proposing necessary legislative measures to attain the central bank’s objectives and perform its functions including strategies and regulations for and supervision of banking companies and financial institutions with the aim to providing efficient financial intermediation and financial services to large, medium, small, and micro enterprises and to pro-poor activities ; Promoting, regulating and ensuring a secure and efficient payment system, including the issue of Bank Notes; To this end, BB would ensure that it has the requisite human and infrastructural resources and build its capability to promote and ensure a robust and wellfunctioning financial sector. This mission statement pledges that the guiding philosophy of Bangladesh Bank’s operations would be sound regulatory framework conducive to the operation of efficient market mechanism along with transparency and accountability, professionalism, ethical standards, adoption of modern technology in operational and decision making processes, and trust and respect in all relations. Periodic strategic planning would serve to identify the emerging challenges, key changes affecting Bangladesh Bank’s internal and external environment and set its strategic guidelines, set priorities, promote improvements in management practices, and induce necessary changes in organizational culture. To fulfill its mission, BB would undertake activities related to developing the national financial system and management of monetary, foreign exchange, and credit policies. The Bangladesh Bank’s core mission strategies cover both monetary policy and financial sector developments.

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Functions of Bangladesh Bank Bangladesh Bank performs all the functions that a central bank of any country is expected to perform, and such functions include maintaining the price stability through economic and monetary policy measures, managing the country’s foreign exchange and the gold reserve and regulating the banking sector of the country. Like all other central banks across the globe, Bangladesh Bank is both the Government’s banker and the banker’s bank, a “Lender of the Last Resort”. Bangladesh Bank, like most of the central banks of different countries, exercises monopoly over the issue of currency and the banknotes. Except for the 1 and 2 taka notes, it issues all other denominations of Bangladeshi Taka. The highest official in the bank is the Governor (currently Salehuddin Ahmed). The Governor chairs the Board of Director. The Executive Staff, also headed by the Governor, are responsible for the day-to-day affairs. Bangladesh Bank has been entrusted with all the traditional central banking functions including the sole responsibilities of issuing currency, keeping the reserves, formulating and managing the monetary policy and regulating the credit system of Bangladesh with a view to stabilizing domestic and external monetary value and promoting and maintaining a high level of production, employment and real income in the country. The bank acts as the banker to the government and accepts government deposits, cheques and drafts, and undertakes collection of cheques and drafts drawn on other banks. The government deposits all its cash balances with the Bangladesh Bank free of interest. The bank transfers government funds from one place to another as requested by the government and its agencies. It makes ways and means for advances to the government, which are repayable not later than three months. It acts as the public debt manager and runs a public debt office (PDO) within itself. The bank also sells government treasury bills on tender, prize bonds and different types of saving certificates (sanchayapatra). The bank acts as the clearing house of the scheduled banks. The purchase, sale and rediscount of bill of exchange and promissory notes drawn on and payable in Bangladesh are also included in the activity of the bank. The bank acts as the lender of last resort for the government as well as for the country's scheduled banks. All scheduled banks are required to maintain a minimum reserve with the Bangladesh Bank. The present statutory liquidity reserve (SLR) requirement is 20% of total demand and time liabilities, 4% of which is to be maintained as cash reserve ratio (CRR), and the rest 16% as approved securities. The SLR requirement for Islamic banks is 10% and they are to keep 4% of this reserve as CRR and the rest 6% in approved securities.

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Bangladesh Bank exercises its wide range of power in credit control through different types of traditional and non-traditional methods. In addition to bank rate and open market operations, it uses a number of other weapons. It can vary the minimum reserve requirements of scheduled banks whenever circumstance so warrant. Being responsible for maintaining external value of Bangladesh currency, the bank also handles the exchange control. It ensures that all foreign exchange inflows are accounted for, and surrendered to the authorized dealers. It allocates and rations foreign exchange in line with the set priorities. Bangladesh Bank is empowered to manage the country's international reserves, which represent aggregate of its holding of gold, foreign exchange, SDR and reserve position in the IMF. The bank also acts as the representative of the government in different international agencies and other forums such as World Bank, IMF, Asian Clearing Union, ADB, etc. Bangladesh Bank is empowered to act as the watchdog of the country's banking system, and all scheduled banks are accountable to Bangladesh Bank, which has extensive powers to ensure soundness of the banking system. No bank can commence banking business in Bangladesh and no existing bank can open a new branch in or outside the country or shift, any branch from one place to another without obtaining a license/permission from the Bangladesh Bank. Bangladesh Bank runs a Deposit Insurance Scheme established under the Deposit Insurance Ordinance 1984. The objective of the scheme is to safeguard the deposits of the customers with both local and foreign deposit money banks doing business in Bangladesh. The deposits amounting up to Tk 100,000 of all customers in a scheduled bank are insured under the scheme. All scheduled banks in Bangladesh are required to be members of the scheme and pay premium on their deposits at a rate determined by the Bangladesh Bank from time to time. Bangladesh Bank accumulates the premiums in the Deposit Insurance Fund. 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 nine-member board of directors comprising the governor as chairperson, one deputy governor and seven 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. Bangladesh Bank has 9 branch offices, two in Dhaka city (sadarghat and Motijheel), and one each in chittagong, khulna, rajshahi, sylhet, bogra, rangpur and barisal. The head office discharges its duties with 28 departments. The departments are International, Law, Financial Institutions, Computer (2), Agricultural Credit, Agricultural Credit Inspection, Agricultural Credit Project, Credit Information Bureau, Research (3), Public Relations and Publications, Audit and Inspection, Statistics (2), Engineering, Problem Bank Monitoring, Administration, Training Academy, Foreign Exchange Policy, Foreign Exchange Inspection, Foreign Exchange Investment, Administration and Expenditure, 6

Banking Inspection, Banking Regulation and Policy, Banking Operation and Development, Monetary Management and Technical Unit, Currency Management and Accounts, Industrial Credit, and Security Management. 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 from 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. The powers and functions of Bangladesh Bank are governed by various laws and acts including the Banker's Books Evidence Act 1891, Insolvency Act 1920, Banking Companies Ordinance 1962, Bangladesh Bank Order 1972, Foreign Exchange (Regulation) Act 1986, Money Loan Court Act 1990, Banking Companies Act 1991, Financial Institutions Act 1993 and Rules 1994, Companies Act 1994 and Bankruptcy Act 1997. Current Board of Directors Chairman Dr. Salehuddin Ahmed Director Md. Nazrul Huda Dr. Wahid Uddin Mahmud Dr.Momtaz Uddin Ahmed Dr.Sufia Ahmed Dr. Hossain Zillur Rahman Dr.Mohammad Tareque Mr.Jafar Ahmad Chowdhury Mr. Muhammad Abdul Mazid Secretary A.T.M. Nasiruddin 7

Current Executive Staff Governor Dr. Salehuddin Ahmed Deputy Governor Md. Nazrul Huda Ziaul Hasan Siddiqui Md. Murshid Kuli Khan Executive Director Md. Nazmul Hoque Md. Asaduzzaman Khan Khandakar Muzharul Haque Md. Abul Quasem Nazir Ahmed Khan Habib Ullah Bahar Md. Yasin Ali A.T.M. Nasiruddin Md. Abdul Matin Conclusion In order to uphold the mission, Bangladesh Bank’s aim would be to provide the required leadership by discharging its duties in a manner that shows a clear vision, is watchful, far-sighted, intelligent and responsive based on an effective and efficient communication strategy. At all times, Bangladesh Bank’s aim would be to remain committed, efficient, capable, logistically supported, speedy, focused, and aggressive where necessary in order to ensure that the Bangladesh Bank always remains a credible and prestigious institution with an efficient organizational structure committed to achieving its goals.

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