What do you know about central bank of Bangladesh
What do you know about central bank of Bangladesh: 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 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: ANM Hamidullah (1972-74); AKN 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); and Dr. Atiur Rahman (2009-till date).
The head office of Bangladesh Bank is motijheel. Besides this Bangladesh Bank have 8 branch offices, one in Dhaka city (sadarghat), and one each in Chittagong, Khulna, Rajshahi, Syhlet, Bogra, Rangpur and Barisal. There are 31 departments in the head office. The head office discharges its duties with 31 departments.
Bangladesh Bank, as a central bank, reserve bank, or 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 conductive 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) Conduct 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 as outlined in the Bangladesh Bank Order, 1972 below: (1) Price stability both internal and external; (2) Sustainable growth and development; (3) High employment; (4) Economic and efficient use of resources; (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 as elsewhere in the world. The core functions of BB are briefly discussed as follows: (1) BB formulates and implements monetary policy aiming at stabilising 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 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 note; (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 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 liberalisation 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 minimising 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 has 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 minimising the risks of loss of depositors’ fund with banks in which all the commercial banks including foreign banks and the specialised 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 minimise 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. 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 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, 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 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 industrialisation, 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. 24,000 will be disbursed 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 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 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-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 organisational 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 in Bangladesh with conducive policy direction; (15) Develop effective channels for communicating central bank’s policies and initiatives to stakeholders to enhance effectiveness of implementation; and (16) Create a ‘Strategic Planning and coordination Unit as a process owner of BB strategic plan.
Source Bangladesh Bureau of Statistics.
What do you know about central bank of Bangladesh
In order to improve the quality of customer service of Bangladesh Bank modernisation 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, 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:
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.
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. Among others, important laws and acts include: Bangladesh Bank Order, 1972 (P.O No. 127 of 1972); Bank Company Act, 1991; The Negotiable Instruments Act, 1881; The Bankers’ Book Evidence Act, 1891; Foreign Exchange Regulations Act, 1947; Financial Institutions Act, 1993; Bank Deposit Insurance Act, 2000; Money Loan Court Act, 2003; Micro Credit Regulatory Authority Act, 2006; Money Laundering Prevention Act, 2009; and Anti-terrorism Act, 2009. On the other hand, regulations and guidelines broadly include Bangladesh Bank Regulations and Foreign Exchange Regulations. [Muhammad Abdul Mazid]
What do you know about central bank of Bangladesh
Central Bank of Bangladesh :
The bank which governs banking system and money market is Central Bank. The primary function of a central bank is to assist Government in formulating economic policy, in controlling and conducting money-market and also controlling bank’ credit. Some specialized Bankers, Economists and thinkers have given different definitions:
“A central bank is a bank whose essential duty is to maintain stability of the monetary standard.”
In the words of Decock, “The central bank is a banking system in which a single bank has either a complete or a residuary monopoly of note issue.”
Professor Hatley says, “Central Bank is the lender of the last resort.”
Role and responsibilities of Central Bank(Bangladesh Bank)
– Formulation and implementation of monetary policy
– Management of foreign exchange
– Clearing Arrangement of cheques/bills
– Supervision of financial sector
– Advising government on various macro policy issues/measures
– To formulate and implement monetary policy
– To formulate and implement intervention policies in the foreign exchange market
– To manage the official foreign exchange reserves
– To promote, regulate and ensure a secure and efficient payment system, including the issue of bank notes
– To regulate and supervise banking companies and financial institutions
– To pay the role of advisor to the government on the impact of various policy measures on the economy
– Applies exchange regulation act, 1947 on behalf of the government
– Exercises the authority given on bb by the money laundering prevention act 2003
Targets and Formulation of Monetary Policy
Targets of monetary policy
a) Growth of money supply has to be consistent with GDP growth rate to ensure a stable inflation rate;
b) Credit flow has to be channeled to productive activities to ensure faster economic growth
Formulation Monetary Policy
a) Growth rate of broad money (total of currency, demand and time deposits) is programmed considering projected GDP growth, inflation and income velocity of money [GDP to broad money supply (M2) ratio];
b) In line with this, annual levels of foreign assets and domestic credit to public and private sector are also programmed
Implementation of Monetary Policy
a) To keep brad money supply on desired growth path, money and credit program is implemented by different ways:
b) Changes in the broad money supply is effected by increasing/ decreasing reserve money (total of Currency issued both by government and the BB, and balances of banks with the BB);
c) Auctions of government treasury bills and bonds and auction of repo and reverse repo are used;
d) Supply of broad money can be influenced through changing cash reserve ratio (CRR) and effecting market interest rates by varying discount rate of central bank.
Functions of Central Bank:
The functions of central bank are different from other banks. The following functions of central bank are stated below:
A. Traditional or general functions:
1. Issue of notes and coins:
The first and foremost function of central bank is to issue notes and coins as per needs of the public and requirement of business and commerce. As per rules, notes are issued against gold, silver and foreign currency. Bangladesh Bank (Central Bank) keeps foreign currency reserves as security against issuance of notes. Bangladesh Bank unilatarilly reserves the right to issue notes.
The arguments in its favour are as follows:
(a) To maintain equilibrium in quality between notes and currency issue
(b) To maintain equilibrium in size, types and values of notes and currency
© To maintain stability in rates of exchange both inland and foreign
(d) To create confidence on the people
(d) To control money market.
2. Government Bank:
Central Bank acts as banker and economic adviser of the Government. The central bank conducts and maintains Government accounts for all Government receipts and payments.
3. Banker’s Bank:
Central Bank acts as banker’s bank. As a rule, all scheduled and commercial banks have to maintain Statutory Liquidity Reserve(SLR) 18% with Bangladesh Bank(CRR: 5% and Bonds & Securities 13%).
4. Lender of the last Resort:
In case of financial crisis of the commercial banks, central bank acts as a lender of the last resort through lending against first class securities, bill of exchange etc.
5. Reservoir of foreign currency:
Central Bank maintains Foreign Currency Reserve. For the purpose of control of foreign currency, the following factors are responsible:
(a) For issuance of notes
(b) For payments of liabilities
(c) For payments of debts.
6. Clearing House:
Central Bank acts as a Clearing House for settlement of inter bank transactions.
7. Credit Control:
Credit Control is one of the major functions of central bank. The following are the ways of controlling credit:
(a) Change in bank rates
(b) Open market operation
© Change ( increase or decrease) in reserve- ratio
(d) Selective credit
(e) Direct influence
(f) Moral suasion
B. Purposeful functions:
(a) Control Currency Market:
Central Bank acts as a controller and guardian of the currency market. For the purpose of formation, control and maintenance of currency market and for its overall development, central bank is the pioneer.
(b) Stabilize Exchange Rate:
Central Bank maintains stability of the foreign currency exchange rates by means of controlling credit. Stable exchange rates position helps create favourable balance of trade and acceptability of stable currency gets momentum in the international market.
(c) Maintain Gold Standard:
Central Bank is responsible for maintenance and control of gold reserve.
(d) Stabilize Price-Level:
Fluctuations and frequent changes of price-level affect economic growth. With a view to making good of the economic imbalances and crisis situations, central bank takes necessary measures for stabilizing price-level.
(e) Stabilize business activities:
Central Bank formulates credit policy and with this spirit, central bank takes necessary steps to protect economic depression for stabilizing business activities.
(f) Employment opportunities:
Central Bank takes initiatives for creating employment opportunities by means of credit-control mechanism.
C. Expansion and Development Functions:
(a) Development of Agriculture Sector:
Central Bank formulates policy for expansion of Agri-sector for the purpose of economic upliftments in the country.
(b) Development of Industry Sector:
(c) Development of natural resources:
Central Bank plays vital role for tapping natural resources which may lead to economic growth.
D. Other Functions:
(a) Adviser and Representative of Government:
Central Bank advises Government on economic issues and sometimes acts as a representative of the Government.
(b) Economic Research:
Central Bank conducts various economic research works and formulates policies for economic development. Central Bank conducts survey on different economic issues for the knowledge of the general public of the country.
Distinguish between Central Bank and Commercial Bank:
Central Bank and Commercial Bank are both financial institutions. But they have got distinguishing features. Central Bank is meant for national welfare and Commercial Bank is meant for earning profits. The following points of distinction between central bank and commercial bank:
Difference between Central Bank and Commercial Bank
Formation Central Bank is the sole banking Institution which is established through ordinance or special law of the Government. Commercial Bank is formed on the basis of Banking Company Laws.
Ownership Central Bank is established under Government ownership. Commercial Bank is established under both govt. and private Ownership.
Purpose To earn profit is not the main purpose of central bank. Its main purpose is to control credit system and money market. The main purpose of commercial bank is to earn profit. Recovery of loan is the main stay for generation of profit.
Number In a country there is only one Central Bank. In a country there may be more number of commercial banks.
Control Central bank is conducted exclusively under Government control. Commercial Bank is conducted under central bank’s control.
Government Influence Government has direct influence on Central Bank. Government has indirect influence On Commercial Bank through Central Bank.
Currency Market Central Bank organizes, controls and administers currency market. Commercial Banks are the members of the currency market.
Competition Central Bank does not compete with other banks. Commercial Bank has to face to face lot of competition.
Representative Central Bank represents the country or state. Commercial Bank represents the Customers.
Foreign Branch Central Bank has no branch abroad. Commercial Bank may have many Branches abroad.
Note issue Note issue is the primary function of central bank. Commercial Bank cannot issue notes.
Credit control Central Bank controls credit. Commercial Bank assists central bank In controlling credit.
Clearing House Central Bank acts as a clearing house for settlement of inter-bank transactions. Commercial banks are the members of the clearing house. They settle transactions through clearing house.
Lender of In case of any crisis, central bank Last resort lends commercial bank as a last resort. Commercial Bank gets assistance from central bank in case of need.
Nature Of work Central bank is not engaged in general banking activities i.e. to receive deposits, to lend, to create loan etc. Commercial bank is engaged in receiving deposits, paying money, creating loan etc.
Foreign Exchange Central Bank controls foreign exchange. Commercial bank helps central bank in controlling foreign exchange.
Investments Central bank does not Make any investment for profitability purpose. Commercial bank makes investments in various sectors for the purpose of profitability.
Refinance Facility Central bank refinances commercial bank against first class securities, bill of exchange. Commercial bank takes refinance facility from the central bank.
Development work Central Bank formulates policy on development Work. Commercial bank participates in the development program Initiated by the central bank.
Bangladesh Bank, the central bank and apex regulatory body for the 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. At present it has ten offices located at Motijheel, Sadarghat, Chittagong, Khulna, Bogra, Rajshahi, Sylhet, Barisal, Rangpur and Mymensingh in Bangladesh; total manpower stood at 5807 (officials 3981, subordinate staff 1826) as on March 31, 2015.
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 .
Overview of Financial system of Bangladesh
The financial system of Bangladesh is comprised of three broad fragmented sectors:
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 etc.; Micro Finance Institutions (MFIs).
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 (NGOs and discrete government programs.
The financial market in Bangladesh is mainly of following types:
Money Market: The money market comprises banks and financial institutions as intermediaries, 20 of them are primary dealers in treasury securities. Interbank clean and repo based lending, BB’s repo, reverse repo auctions, BB bills auctions, treasury bills auctions are primary operations in the money market, there is also active secondary trade in treasury bills (upto 1 year maturity).
Taka Treasury Bond market: The Taka treasury bond market consists of primary issues of treasury bonds of different maturities (2, 5, 10, 15 and 20 years), and secondary trade therein through primary dealers. 20 banks performing as Primary Dealers participate directly in the primary auctions. Other bank and non bank investors can participate in primary auctions and in secondary trading through their nominated Primary Dealers. Non-resident individual and institutional investors can also participate in primary and secondary market, but only in treasury bonds.
Monthly data on primary and secondary trade volumes in treasury bills and bonds and data on outstanding volume of treasury bonds held by non residents can be accessed at Monthly data of Treasury Bills & Bonds .
Capital market:The primary issues and secondary trading of equity securities of capital market take place through two (02) stock exchanges-Dhaka Stock Exchange and Chittagong Stock Exchange. The instruments in these exchanges are equity securities (shares), debentures and corporate bonds. The capital market is regulated by Bangladesh Securities and Exchange Commission (BSEC).
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 repatriable 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.
A country´s payment system is the channel through which the central bank passes financial transaction part of its monetary policy. Central banks’ functions in the area of payment systems are very closely related to their functions in the areas of monetary policy and financial stability. Monetary stability supports sound investment and sustainable economic growth, which in turn are conducive to financial stability and support the smooth operation of payment systems.
Well-functioning payment systems ensure the efficient and safe execution of monetary policy operations and facilitate the smooth and homogenous transmission of monetary impulses. The smooth functioning of payment systems is a precondition for users’ confidence in these systems and, ultimately, public confidence in the currency. Central banks would extend their concern toward the safe and efficient use of payment instruments with a view to maintain public confidence in the currency and ensure its smooth circulation. Central banks have a strong interest in promoting safety and improving efficiency in payment systems as part of their overall concern with financial stability. The importance that central banks attach to the stability of financial markets derives from the possibility that financial institutions’ actual or perceived inability to settle their obligations in distressed market conditions could contribute to a loss of confidence and could also have a negative effect on the stability of financial markets and the economy as a whole.
In systemically important payment systems, disruption caused by one participant in the infrastructure can cause disruptions for other participants, propagate financial disturbances and possibly even amplify such disturbances by inducing chain reactions that might contaminate the whole financial system. In such systems, central banks aim mainly to:
prevent systemic risk, thereby maintaining financial stability;
promote the efficiency of payment systems and instruments;
ensure the security of and public trust in the currency as the settlement asset; and
safeguard the transmission channel for monetary policy.
According to the Section 7A (e) of the Bangladesh Bank Order, 1972; one of the main functions of the Bangladesh Bank is – “to promote, regulate and ensure a secure and efficient payment system” In fulfilling this mandate and considering the importance, Payment Systems Department (PSD) has been formed on 26 July 2012, prior to this it was a section under Department of Currency Management and Payment Systems.
Follow the links below to have an overview of the prevailing payment and settlement systems in Bangladesh –
Follow the links below to have an overview of the prevailing payment and settlement systems in Bangladesh –
Payment Systems Department’s Activities National Payment Switch(NPS)
Payment Systems Strategy e-Commerce & m-Commerce
Bangladesh Automated Clearing House (BACH) Legal & Regulatory Framework
Bangladesh Automated Cheque Processing Systems (BACPS) Real Time Gross Settlement (RTGS)
Bangladesh Electronic Funds Transfer Network (BEFTN) Payment Systems Oversight
Mobile Financial Services Online Payment Gateway Service Providers(OPGSPs)
Recent reviews and pronouncements of monetary policy
Monetary Policy Review, October 2011
Cover and Contents
Chapter-1 Financial market trends and monetary policy actions
Chapter-2 Trends in the real economy
Chapter-3 Developments in money, credit and prices
Chapter-4 Macroeconomic outlook and options for monetary policy going forward
Monetary Policy Statement H1FY12
Monetary Policy Statement H2FY11
Facilities / Incentives
Bangladesh offers generous opportunities for investment under its liberalised Industrial Policy and export-oriented, private sector-led growth strategy. All but four sectors (i.e. (1) arms and ammunition and other defence equipment and machinery, (2) forest plantation and mechanised extraction within the bounds of reserved forests, (3) production of nuclear energy, and (4) security printing and mining) are open for private investment in Bangladesh. The government’s role is that of a facilitator which helps create an enabling environment for expanding private investment, both domestic and foreign. The Board of Investment (BOI), established by the government for accelerating private investment, provides institutional support services to intending investors.
General facilities/ incentives
Tax holiday facilities will be available for 5 or 7 years depending on the location of the industrial enterprise. For industrial enterprises located in Dhaka and Chittagong Divisions ( excluding Hill Tract districts of Chittagong Division) the tax holiday facility is for 5 years while it is 7 years for locations in Khulna, Sylhet, Barisal, and Rajshahi, Divisions and the 3 Chittagong hill districts.
Tax holiday facilities are provided in accordance with existing laws. The period of tax holiday will be calculated from the month of commencement of commercial production. Tax holiday certificate will be issued by NBR ( National Board of Revenue) for the total period within 90 days of submission of application.
New facilities offered for bonds
Process Flow of Bond
Wage earners development bond
Inward remittance facilities
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Tax exemptions are allowed in the following cases:
* Tax exemption on royalties, technical know-how fees received by any foreign collaborator, firm, company and expert.
* Exemption of income tax up to 3 years for foreign technicians employed in industries specified in the relevant schedule of the income tax ordinance.
* Tax exemption on income of the private sector power generation company for 15 years from the date of commercial production.
* Tax exemption on capital gains from the transfer of shares of public limited companies listed with a stock exchange.
Industrial undertakings not enjoying tax holiday will enjoy accelerated depreciation allowance. Such allowance is available at the rate of 100 per cent of the cost of the machinery or plant if the industrial undertaking is set up in the areas falling within the cities of Dhaka, Narayangonj, Chittagong and Khulna and areas within a radius of 10 miles from the municipal limits of those cities. If the industrial undertaking is set up elsewhere in the country, accelerated depreciation is allowed at the rate of 80 per cent in the first year and 20 per cent in the second year.
Concessionary duty on imported capital machinery
Import duty, at the rate of 5% ad valorem, is payable on capital machinery and spares imported for initial installation or BMR/BMRE of the existing industries . The value of spare parts should not, however, exceed 10% of the total C & F value of the machinery. For 100% export oriented industries, no import duty is charged in case of capital machinery and spares. However, import duty @ 5% is secured in the form of bank guarantee or an indemnity bond will be returned after installation of the machinery. Value added Tax ( Vat) is not payable for imported capital machinery and spares.
Private investment from overseas sources is welcome in all areas of the economy with the exception of the four reserved sectors (mentioned earlier). Such investments can be made either independently or through venture on mutually beneficial terms and conditions. Foreign investment is, however, especially desired in the following major categories of industries:
* Export oriented industries
* Industries in the Export Processing Zones ( EPZs)
* High technology products that will be either import substitute or export oriented.
(a) For foreign direct investment, there is no limitation pertaining to foreign equity participation, i.e. 100 percent foreign equity is allowed. Non-resident institutional or individual investors can make portfolio investments in stock exchanges in Bangladesh. Foreign investors or companies may obtain full working loans from local banks. The terms of such loans will be determined on the basis of bank-client relationship.
(b) A foreign technician employed in foreign companies will not be subjected to personal tax up to 3 (three) years , and beyond that period his/ her personal income tax payment will be governed by the existence or non-existence of agreement on avoidance of double taxation with country of citizenship.
(c) Full repatriation of capital invested from foreign sources will be allowed. Similarly, profits and dividend accruing to foreign investment may be transferred in full. If foreign investors reinvest their repatriable dividends and or retained earnings, those will be treated as new investment. Foreigners employed in Bangladesh are entitled to remit up to 50 percent of their salary and will enjoy facilities for full repatriation of their savings and retirement benefits.
(d) Foreign entrepreneurs are, therefore, entitled to the same facilities as domestic entrepreneurs with respect to tax holiday, payment of royalty, technical know-how fees etc.
(e) The process of issuing work permits to foreign experts on the recommendation of investing foreign companies or joint ventures will operate without any hindrance or restriction. Multiple entry visa” will be issued to prospective foreign investors for 3 years. In the case of experts,” multiple entry visa” will be issued for the whole tenure of their assignments.
Citizenship by investing a minimum of US $ 500,000 or by transferring US$ 1,000,000 to any recognised financial institution ( Non-repatriable ).
Permanent residentship by investing a minimum of US$ 75,000 ( non-repatriable).
Special facilities and venture capital support will be provided to export-oriented industries under “Thrust sectors” . Thrust Sectors include Agro-based industries, Artificial flower-making, Computer software and information technology, Electronics, Frozen food, Floriculture, Gift items, Infrastructure, Jute goods, Jewellery and diamond cutting and polishing, leather, Oil and gas, Sericulture and silk industry, Stuffed toys, Textiles, Tourism.
Investment Protections / International Agreements
Legal Protection: The policy framework for foreign investment in Bangladesh is based on ‘The Foreign Private Investment (Promotion & Protection ) Act. 1980,’ which ensures legal protection to foreign investment in Bangladesh against nationalisation and expropriation. It also guarantees non-discriminatory treatment between foreign and local investment, and repatriation of proceeds from sales of shares and profit.
International Agreements: Bangladesh has concluded bilateral agreements for avoidance of double taxation and investment treaties for promotion and protection of investment with the following countries:
Bilateral agreements: Belgium, Canada, China, Denmark, France, Germany, India, Italy, Japan, Poland, Romania, Singapore, South Korea, Sri Lanka, Sweden, Thailand, The Netherlands, United Kingdom ( including Northern Ireland ). Negotiations are ongoing with U.S.A, Iran, Philippines, Qatar, Australia, Nepal, Turkey, Indonesia, Cyprus, Norway, Finland and Spain.
Investment treaty: Belgium, Canada, France, Germany, Iran, Italy, Japan, Malaysia, Pakistan, Philippines, Poland, Republic of Korea, Romania, Switzerland, Thailand, The Netherlands, Turkey, United Kingdom, USA, Indonesia. Negotiations are ongoing with India, Hungary, Oman, Maldova, DPRK, Egypt, Austria, Mauritius, Uzbekistan.
In addition, Bangladesh is a signatory to MIGA ( Multilateral Investment Guarantee Agency), OPIC ( Overseas Private Investment Corporation ) of USA, ICSID (International Centre for Settlement of Investment Disputes) and a member of the WIPO (World Intellectual Property Organization) permanent committee on development co-operation related to industrial property.
Incentives to Non-Resident Bangladeshis ( NRBs)
Investment of NRBs will be treated on par with FDI. Special incentives are provided to encourage NRBs to invest in the country. NRBs will enjoy facilities similar to those of foreign investors. Moreover, they can buy newly issued shares/debentures of Bangladeshi companies . A quota of 10% has been fixed for NRBs in primary public shares. Furthermore, they can maintain foreign currency deposits in the Non-resident Foreign Currency Deposit (NFCD) account.
RELAXATION / LIBERALISATION OF EXCHANGE CONTROL REGULATIONS
Bangladesh ‘Taka’ is convertible for current external transactions. Individuals/firms resident in Bangladesh may conduct all current external transactions, including trade and investment related transaction, through banks in Bangladesh authorised to deal in foreign exchange ( Authorised Dealers ) without prior approval of the Bangladesh Bank. Non- resident direct investment in industrial enterprise in Bangladesh and non-resident portfolio investment through stock exchanges in Bangladesh also do not require prior approval of the Bangladesh Bank. Remittance of post-tax dividend/profit on non resident direct or portfolio investment do not require prior approval. Sale proceeds, including capital gains on non-resident portfolio investment may also be remitted abroad without prior approval. Repatriation of sale proceeds of non-resident investment in unlisted companies is allowed by Bangladesh Bank on the basis of the net asset value of the shares of the company. Investors may obtain relevant procedural details by contacting any Authorised Dealer bank in Bangladesh .
To facilitate investment, prior approval of the Bangladesh Bank is no longer required for :
* remittance of profits to their head offices by foreign firms and companies operating in Bangladesh
* issuance of shares to non-residents against investment for setting up industries in Bangladesh.
* remittance of dividends on such shares to the non-resident investors.
* portfolio investment by non-residents including foreign individuals/enterprises in shares and securities through stock exchanges in Bangladesh .
* remittance of dividends on portfolio investment by non-residents through stock exchanges in Bangladesh .
* remittance of sale proceeds, including capital gains of portfolio investments of non-residents through stock exchanges in Bangladesh
* remittance of principal and interest instalments on loans/suppliers credits obtained by industrial units from foreign lenders with approval of the BOI. 100% foreign owned ( Type A) industrial units in the EPZs (Export Processing Zone) do not require prior permission of BOI for such foreign borrowing.
* remittance in repayment of principal and payment of interest of such loans.
* remittance of technical fees and royalties against technical assistance/royalty agreements in conformity with BOI guidelines.
* remittance of savings of expatriate personnel at the time of their leaving Bangladesh, out of the salaries and benefits stated in their employment contracts as approved by BOI.
* extension of term loans by banks on normal banking considerations to foreign firms operating in Bangladesh, subject to compliance of the instruction of GFET-2009, Vol-1, chapter-16, para 4(B).
* extension of working capital loans to all foreign owned/controlled industrial and trading firms/companies by banks on the basis of bank customer relationship and normal banking practice.
* obtaining of interest-free repatriable short-term foreign currency loans by foreign firms investing in Bangladesh from their head offices or any other sources through any authorised dealer.
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.
Find out some important BB forms from ‘BB Forms’ link.
Time series(Economic data)
Bangladesh Bank (BB), the central bank of Bangladesh, has rich traditions of publishing data on various aspects of the Bangladesh Economy through several of its publications. Using this Data Warehouse application, data are mainly presented through time-series formatted reports.
Reports can be saved as excel format for further analysis.
Users: Banks, FIs, Economists, Researchers, Analysts
Online CIB services
To create a disciplined environment for borrowing, the automated CIB service provides credit related information for prospective and existing borrowers. With this improved and efficient system, risk management will be more effective. Banks and financial institutions may furnish credit information to CIB database 24 by 7 around the year; and they can access credit reports from CIB online.
Users: Banks and FIs
Online Agent Information Management System
This system is to be used to send the required information and documents by the Authorized Dealer Bank for granting permission under Section-18A of Foreign Exchange Regulation Act, 1947 to work as local agent of foreign principal(s).
Users: AD Branch of Banks
User Guide: Online Agent Information Management System
goAML is a UNODC response to combat money-laundering. The goAML Client application is an intelligence analysis system intended to be used by Bangladesh Financial Intelligence Unit (BFIU) which is the central agency of Bangladesh responsible for analyzing Suspicious Transaction Reports (STRs), Cash Transaction Reports (CTRs) & information related to money laundering (ML)/financing of terrorism (TF) received from reporting organizations & other sources and disseminating information/intelligence thereon to relevant law enforcement agencies for further action. The goAML Web application provides a secure web based interface between the BFIU and its reporting organizations for the electronic upload of reports such as XML files, filling out the online report forms or sending XML files as attachments by secure e-mail, information sharing among stakeholders and other information.
Users: All scheduled Banks, Stakeholders & other reporting agencies
User Guide:download .zip file
In terms of article 36(3) of Bangladesh Bank Order, 1972,all scheduled banks are subject to submit Weekly Statement of Position as at the close of business on every Thursday to the Department of Off-site Supervision. This statement must be submitted through on-line using this web service within o3 (three) working days after the reporting date.
Users: All scheduled banks
Using this service you can search single or multiple numbers at a time.
Online Foreign Exchange Transaction Monitoring System
Online Foreign Exchange Transaction Monitoring System is used for monitoring total foreign exchange transactions of Bangladesh. The system includes Export, Import, Inward remittance(Wage Earners’ remittance and other) and Outward remittance(Traveling and Miscellaneous). Through it’s services, Banks and AD Branches issue & reports Foreign Exchange Transactions to Bangladesh Bank.
Users: Banks, AD Branch of Banks and Customs
Mobile Apps: Banking Information
Mobile app for ATM Booths and Branches location details as well as services provided to the customers in Bangladesh.
Download link: https://play.google.com/store/apps/details?id=com.isdd.bb.org
Bangladesh Bank eTender System
Bangladesh Bank introduces the online tendering system to facilitate the procurement process of Bangladesh Bank. The system will help you to participate in the local and international tender/procurement of Bangladesh Bank.
Users: Interested Bidders
An Online Portal Service for Scheduled Banks to submit Electronic Returns using predefined template for the purpose of Macro Economy Analysis through related BB Departments.
Users: All Schedule Bank
User Guide: Rationalized Input Template has been provided to all Schedule Bank
Special Foreign Currency Account Monitoring System (SFCAMS)
Online Special Foreign Currency Account Monitoring System is used for monitoring FC account transactions of Bangladesh.Through it’s services, AD Branches of Banks report day to day Transactions (Only Special FC A/C) to Bangladesh Bank.
Users: AD Branch of Banks
User Manual: view
Information for Deposit Insurance Premium Assessment (IDIPA)
Deposit Insurance System (DIS) is now contributing financial stability, protecting bank’s depositors and assuring insurance benefits in the unlikely event of Scheduled Banks. The key elements of DIS are to maintain public confidence and promote financial sector’s resilience through increasing savings. DIS in Bangladesh is now being administrated by ‘The Bank Amanat Bima Ain, 2000’.
Users: All scheduled banks
Corporate Memory Management Systems (CMMS)
Corporate Memory Management Systems is a web-based application to monitor the errors, omission and violation of regulations and policies by the Schedule Commercial Banks/FI’s and their executives..
Users: All Scheduled Banks and FIs
e-statement for CRR & SLR
In terms of article 36 of Bangladesh Bank Order, 1972 and Bank Company Ain, 1991,all scheduled banks (both Conventional and Islamic Banking) in Bangladesh are subject to submit Thursday Positions of Demand And Time Liabilities for calculating CRR and SLR at the close of business. This statement must be submitted through on-line using this web service to Department of Off-site Supervision (DOS) within the 10th of the following month.
Users: All Scheduled Banks
User Guide: Download User Guide