Bangladesh Bank Review Example

Introduction: Bangladesh Bank is the central bank and regulatory body for Bangladesh. It controls the monetary and financial system; it was established in Dhaka as as per the Bangladesh Bank Order, 1972 with effect from 16th December, 1971. At present it has nine offices located at Motijheel, Sadarghat, Chittagong, Khulna, Bogra, Rajshahi, Sylhet, Barisal and Rangpur in Bangladesh; total manpower stood at 4926 (officials 3910, subordinate staff 1016) as on December 31, 2011. | | Functions|.

BB performs all the core functions of a typical monetary and financial sector regulator, and a number of other non core functions. The major functional areas include 😐 Formulation and implementation of monetary and credit policies. Regulation and supervision of banks and non-bank financial institutions, promotion and development of domestic financial markets. Management of the country’s international reserves. Issuance of currency notes. Regulation and supervision of the payment system. Acting as banker to the government. Money Laundering Prevention.

Collection and furnishing of credit information. Implementation of the Foreign exchange regulation Act. Managing a Deposit Insurance Scheme. | Roles of Banladesh BankThe central bank has the sole monopoly of note issue in almost every country. The currency notes printed and issued by the central bank become unlimited legal tender throughout the country. The central bank functions as a banker, agent and financial adviser to the government,As a banker to government, the central bank performs the same functions for the government as a commercial bank performs for its customers.

It maintains the accounts of the central as well as state government; it receives deposits from government; it makes short-term advances to the government; it collects cheques and drafts deposited in the government account; it provides foreign exchange resources to the government for repaying external debt or purchasing foreign goods or making other payments. As an Agent to the government, the central bank collects taxes and other payments on behalf of the government. It raises loans from the public and thus manages public debt.

It also represents the government in the international financial institutions and conferences. As a financial adviser to the lent, the central bank gives advice to the government on economic, monetary, financial and fiscal matters such as deficit financing, devaluation, trade policy, foreign exchange policy, etc. The central bank acts as the bankers’ bank in three capacities:(a) custodian of the cash preserves of the commercial banks;(b) as the lender of the last resort; and (c) as clearing agent.

In this way, the central bank acts as a friend, philosopher and guide to the commercial banksAs a custodian of the cash reserves of the commercial banks the central bank maintains the cash reserves of the commercial banks. Every commercial bank has to keep a certain percentage of its cash balances as deposits with the central banks. These cash reserves can be utilised by the commercial banks in times of emergency. | | | | | | 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. Thisreorganization was done pursuant to Bangladesh Bank Order, 1972, and theBangladesh Bank came into existence with retrospective effect from 16th December 1971. The highest official in the bank is the Governor . 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 area) 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.

To develop continually as a forward looking 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 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 ystem;| | * Managing foreign exchange reserves and regulating the foreign exchange market;| | * Regulating and supervising banks and financial institutions, and advising the government on interactions and impacts of fiscal, monetary and other economic policies. | They are discharging these functions in a forward looking, proactive, responsive and consultative manner.

In their aspiration for ever higher standards of performance they are aware of their limitations in independence, logistics, professional know-how and appropriateness of skill sets in staffing; they are persistent in effort to overcome these limitations. In work they shall preserve and further strengthen the already earned confidence and trust of the nation, to continue being seen as a respected institution to be emulated. Overviewof Financial system of Bangladesh The financial system of Bangladesh is comprised of three broad fragmented sectors: 1.

Formal Sector, 2. Semi-Formal Sector, 3. Informal Sector. The sectors have been categorized in accordance with their degree of regulation. The formal sector includes all regulated institutions like Banks, Non-Bank Financial Institutions (FIs), Insurance Companies, Capital Market Intermediaries like Brokerage Houses, Merchant Banks. The semi formal sector includes those institutions which are regulated otherwise but do not fall under the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange Commission or any other enacted financial regulator.

This sector is mainly represented by Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank etc. , Non Governmental Organizations (NGO sand discrete government programs. The informal sector includes private intermediaries which are completely unregulated. The financial market in Bangladesh is mainly of following types: 1. Money Market: The primary money market is comprised of banks, FIs and primary dealers as intermediaries and savings & lending instruments, treasury bills as instruments.

There are currently 15 primary dealers (12 banks and 3 FIs) in Bangladesh. The only active secondary market is overnight call money market which is participated by the scheduled banks and FIs. The money market in Bangladesh is regulated by Bangladesh Bank (BB), the Central Bank of Bangladesh. 2. Capital market: The primary segment of capital market is operated through private and public offering of equity and bond instruments. The secondary segment of capital market is institutionalized by two (02) stock exchanges-Dhaka Stock Exchange and Chittagong Stock Exchange.

The instruments in these exchanges are equity securities (shares), debentures, corporate bonds and treasury bonds. The capital market in Bangladesh is governed by Securities and Commission (SEC). 3. Foreign Exchange Market: 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. Repatriation of profits or disinvestment proceeds on non-resident FDI and portfolio investment inflows are permitted freely. Direct investments of non-residents in the industrial sector and portfolio investments of non-residents through stock exchanges are reparable abroad, as also are capital gains and profits/dividends thereon. Investment abroad of resident-owned capital is subject to prior Bangladesh Bank approval, which is allowed only sparingly.

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. The exchange rate is being determined in the market on the basis of market demand and supply forces of the respective currencies. In the forex market banks are free to buy and sale foreign currency in the spot and also in the forward markets.

However, to avoid any unusual volatility in the exchange rate, Bangladesh Bank, the regulator of foreign exchange market remains vigilant over the developments in the foreign exchange market and intervenes by buying and selling foreign currencies whenever it deems necessary to maintain stability in the foreign exchange market. CentralBank Bangladesh Bank acts as the Central Bank of Bangladesh which was established on December 16, 1972 through the enactment of Bangladesh Bank Order 1972- President’s Order No.

127 of 1972. The general superintendence and direction of the affairs and business of BB have been entrusted to a 9 members’ Board of Directors which is headed by the Governor who is the Chief Executive Officer of this institution as well. BB has 40 departments and 9 branch offices. In Strategic Plan (2010-2014), the vision of BB has been stated as, “To develop continually as a forward looking 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”. The main functions of BB are: 1. To formulate and implement monetary policy;

2. To formulate and implement intervention policies in the foreign exchange market; 3.

To give advice to the Government on the interaction of monetary policy with fiscal and exchange rate policy, on the impact of various policy measures on the economy and to propose legislative measures it considers necessary or appropriate to attain its objectives and perform its functions; 4. To hold and manage the official foreign reserves of Bangladesh; 5. To promote, regulate and ensure a secure and efficient payment system, including the issue of bank notes; 6. To regulate and supervise banking companies and financial institutions. Core Policies of Central Bank Monetary policy.

The main objectives of monetary policy of Bangladesh Bank are: * Price stability both internal & external * Sustainable growth & development * High employment * Economic and efficient use of resources * Stability of financial & payment system Bangladesh Bank declares the monetary policy by issuing Monetary Policy Statement (MPS) twice (January and July) in a year. The tools and instruments for implementation of monetary policy in Bangladesh are Bank Rate, Open Market Operations (OMO), Repurchase agreements (Repo) & Reverse Repo, Statutory Reserve Requirements (SLR & CRR).

After the independence, establishment of Dhaka Stock Exchange (formerly East Pakistan Stock Exchange) initiated the pathway of capital market intermediaries in Bangladesh. In 1976, formation of Investment Corporation of Bangladesh opened the door of professional portfolio management in institutional form. In last two decades, capital market witnessed number of institutional and regulatory advancements which has resulted diversified capital market intermediaries. At present, capital market intermediaries are of following types:

1. Stock Exchanges: Apart from Dhaka Stock Exchange, there is another stock exchange in Bangladesh that is Chittagong Stock Exchange established in 1995. 2. Central Depository: The only depository system for the transaction and settlement of financial securities, Central Depository Bangladesh Ltd (CDBL) was formed in 2000 3. which conducts its operations under Depositories Act 1999, Depositories Regulations 2000, Depository (User) Regulations 2003, and the CDBL by-laws. 4.

Stock Dealer/Sock Broker: Under SEC (Stock Dealer, Stock Broker & Authorized Representative) Rules 2000, these entities are licensed and they are bound to be a member of any of the two stock exchanges. At present, DSE and CSE have 238 and 136 members respectively. 5. Merchant Banker & Portfolio Manager: These institutions are licensed to operate under SEC (Merchant Banker & Portfolio Manager Rules) 1996 and 45 institutions have been licensed by SEC under this rules so far. 6. Asset Management Companies (AMCs): AMCs are authorized to act as issue and portfolio manager of the mutual funds which are issued under SEC (Mutual Fund) Rules 2001.

There are 15 AMCs in Bangladesh at present. 7. Credit Rating Companies (CRCs): CRCs in Bangladesh are licensed under Credit Rating Companies Rules, 1996 and now, 5 CRCs have been accredited by SEC. 8. A Trustees/Custodians: According to rules, all asset backed securitizations and mutual funds must have an credited trusty and security guardian. For that purpose, SEC has licensed 9 institutions as Trustees and 9 institutions as custodians. 9. Investment Corporation of Bangladesh (ICB): ICB is a specialized capital market intermediary which was established in 1976 through the ordainment of The Investment Corporation of Bangladesh Ordinance 1976.

This ordinance has empowered ICB to perform all types of capital market intermediation that fall under jurisdiction of SEC. ICB has three subsidiaries: Monetary Policy Statements: Bangladesh Bank’s half yearly monetary statements help the government policies and programs to maintain faster economic growth and reduce poverty while maintaining price stability. January-June, 2012| [English]| Summary statement| [Bangla]| July-December, 2011| [English]| January-June, 2011| [English]| July-December, 2010| [English]| [Bangla]| January-June, 2010| [English]| July-December, 2009| [English]| [Bangla]|.

Services for general public Bangladesh Bank serves the people in many ways. The Bank issues banknotes with special security features so that owner knows the money is genuine. View the security posters to know the features. If you have deposited your money in scheduled banks, and have not made transaction for last ten years, you can check your account from ‘Claim your money’ link. Any client, person or agency having complaint(s) against a Scheduled Bank/FI/Bangladesh Bank or related official may write down his/her complaint(s) in the ‘Customer Complaint’ link.