about the bangladesh bank

8/6/2019 About the Bangladesh Bank

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Governor Secretariat(Information & Public Relations Division)

About

BANGLADESH BANK(The Central Bank of Bangladesh)

Central Banking:

Concept in Brief

A central bank, reserve bank, or monetary authority is a banking institution

granted the exclusive privilege to lend a government its currency. Like a

normal commercial bank, a central bank charges interest on the loans made

to borrowers, primarily the government of whichever country the bank

exists for, 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 of a nation,

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). It may also have

supervisory powers, to ensure that banks and other financial institutions do

not behave recklessly or fraudulently.

Bank and

Central Banking:

History

Strengthening the financial sector is a vital concern for an economy.

Efficient banking or sound financial system serves as an effective channel

for mobilizing funds from savers to productive sectors and thus helps to

achieve economic growth. However, the idea of ‘Bank’ is so ancient and

this concept is evolving over time. Around the time of Adam Smith (1776)

there was a massive growth in the banking industry. Within the new system

of ownership and investment, the state's role as an economic actor changed

substantially. The Jews in Jerusalem introduced a kind of banking in the

form of money lending before the birth of Christ. The word 'Bank' was

probably derived from the word 'bench' as during ancient time Jews used to

do money lending business sitting on long benches. First modern banking

was introduced in 1668 in Stockholm as 'Svingss Pis Bank' which opened

up a new era of banking activities throughout the European Mainland.



In the South Asian region a major landmark was the establishment of the

Hindustan Bank in 1700 at Kolcutta. Dhaka Bank started to operate in1806.

Banks established in this region during the British period include Kurigram

Bank (1887), Kumarkhali Bank(1896), Mahalaxmi Bank, Chittagong

bank(1910), Dinajpur Bank(1914), Comilla Banking Corporation (1914)

and Comilla Union Bank(1922). Major Indian Banks also had branches inthis territory. In Europe prior to the 17th century most money was

commodity money, typically gold or silver. However, promises to pay were

widely circulated and accepted as value at least five hundred years earlier in

both Europe and Asia. The medieval European Knights Templar ran

probably the best known early prototype of a central banking system. At

about the same time, Kublai Khan of the Mongols introduced fiat currency

to China, which was imposed by force by the confiscation of specie.

Although central banks are generally associated with fiat money, under the

international gold standard of the nineteenth and early twentieth century’s

central banks developed in most of Europe and in Japan, though elsewhere

free banking or currency boards were more usual at this time. Problems

with collapses of banks during downturns, however, was leading to wider

support for central banks in the respective nations which did not as yet

possess them, most notably in Australia.

As the first public bank to "offer accounts not directly convertible to coin",

the Bank of Amsterdam established in 1609 is considered to be the "first

true central bank". This was followed in 1694 by the Bank of England,

created by Scottish businessman William Paterson in the City of London at

the request of the English government to help pay for a war.

With the collapse of the gold standard after World War II, central banks

became much more widespread.

The banking system at our independence consisted of two branch offices of

the former State Bank of Pakistan established in July 1948: one was in

Bangladesh (former East Pakistan) and the other was in West Pakistan

(present Pakistan).



Bangladesh Bank

(BB): Establishment

Bangladesh Bank, the central bank as well as chief authority to regulate

country’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. At present it has got 9 branches and those are located at

Motijheel, Khulna, Sadarghat, Bogra, Chittagonj, Sylhet, Barisal, Rangpur

and Rajshahi in Bangladesh and total number of staffs stood at 7240 as on

end December 2009. BB’s Vision and

Mission:

Vision:

To develop continually as a forwardlooking central bank with competent

and committed professionals of high ethical standards, conducting monetary

management and financial sector supervision to maintain price stability and

financial system robustness, supporting rapid broad based inclusive

economic growth, employment generation and poverty eradication in

Bangladesh.

Mission:

We at Bangladesh Bank are carrying out its following main functions as the

country’s central bank:

• formulating monetary and credit policies

• managing currency issue and regulating payment system

• managing foreign exchange reserves and regulating the foreign

exchange market

• regulating and supervising banks and financial institutions, andadvising the government on interactions and impacts of fiscal,

monetary and other economic policies.

We are discharging these functions in a forward looking, proactive,

responsive and consultative manner. In our aspiration for ever higher

standards of performance we are aware of our limitations in independence,logistics, professional know-how and appropriateness of skill sets in

staffing; we are persistent in effort to overcome these limitations.

Bangladesh Bank:

Core Functions

BB as the central bank of Bangladesh executes all the functions that a

central bank traditionally performs as elsewhere in the world. The core

functions of BB are briefly discussed as follows:

(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 (1) 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

instructions (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 note1;

(6) BB performs as a clearing house for the scheduled banks to clear

and settle inter-bank payment 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 aswell 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.

1 Bank note include notes of taka 5 and above denominations and coins of taka 5



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.

BB’s Hierarchy:Governor

↓ Deputy Governor

↓ Executive Director/Economic Adviser

↓ General Manager/Systems manager

↓ Deputy General Manager/Senior Systems Analyst/Deputy Chief Medical Officer

↓ Joint Director/Joint Manager/Systems Analyst/Sr. Programmer/Operation Manager/Asstt. Chief Medical Officer

↓ Deputy Director/Deputy Manager/Programmer/Computer Operation Supervisor/Sr. Medical Officer

↓ Assistant Director/Assistant Manager/Assistant Programmer/Sr. Computer Operator/Medical Officer

↓ Officer/Data Entry/Control Supervisor

↓ Clerk-1

stGrade/Sr. Data Entry/Control Operator/Stenographer/Typist/Telephone Operator

↓ Data Entry/Control Operator

↓ Caretaker-1st Grade

↓ Caretaker-2ndGrade

↓ Jomader/MLSS

↓

Door Keeper/Mali/Khedmotgar



Monetary Policy:Objectives

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 as outlined in the

Bangladesh Bank Order, 1972 below:

• Price stability both internal & external;

• Sustainable growth & development;

• High employment;

• Economic and efficient use of resources;

• Stability of financial & payment system. 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 adverserepercussion 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.

BB’s 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 veryirregular 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 & 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.

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 member 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 lossout 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. Among others, 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. And the

Information and Public Relations Division (IPRD) of Governor Secretariat,

helps handling media briefings and liaison, and issuance of press releases,

etc.

BB's websites (www.bangladesh-bank.org and

www.bangladeshbank.org.bd) now serve as important communicationplatforms, 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, this is particularly true in developed

countries. Inclusiveness of a greater segment of people in financial system

is pre requisite 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 scant access to

banking services. Bangladesh Bank has started to find a way out of this

situation and services like deposit, small credit etc. need to be made

available to the common people for the sake of poverty reduction also.

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 Small and Medium Enterprises (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 increasingtheir 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. Against the

sector in total of Tk. 24000 will be disbursed in the current fiscal (FY 2009-

10) through the banking channel.

The agriculture credit program announced by BB for FY 10 enjoins all

banks to engage in lending for a comprehensive range of no-and off-farmrural economic activities, with refinance lines available to them from

Bangladesh Bank. 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 share croppers, 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 ten 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-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 kilo watt 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 Govt. poverty has been targeted to

reduce below 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. Develop more efficient currency management and payment system

6. Enhance regulatory and supervisory framework against money

laundering

7. Introduce separate and comprehensive guideline and supervision for

Islamic banking

8. Develop more efficient management of government domestic debt

9. Streamline and transform data reporting, processing and dissemination

through full fledged ICT framework

10. Full automation of credit information bureau (CIB)

11. Close the existing gaps in legal empowerment of BB in different

functional areas

12. Attract, retain and develop people ensuring sound organizational

development

13. Strengthen Risk-based internal control to add value to the Risk

Management Process in Bangladesh Bank

14. Promote CSR activities and preparedness for climate change inBangladesh with conducive policy direction

15. Develop effective channels for communicating central bank’s

policies and initiatives to stakeholders to enhance effectiveness of

implementation

16. Create 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 andmany others.

Therefore, with the view to reduce poverty; accelerate economic activities

with satisfying the credit needs, BB’s recent initiative in bringing the people

outside the bank under banking services in line with financial inclusion is

likely to contribute in economic development of Bangladesh.

Economic

Growth:

BB’s one of the key objectives 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:

Source: Bangladesh Bureau of Statistics (BBS)

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