Central Bank Autonomy (June 2013)

Central Bank Autonomy (June 2013): Bangladesh Bank was established under the supervision of the Ministry of Finance after independence of Bangladesh with the Bangladesh Bank Order, 1972 to control the monetary and credit system of Bangladesh. The key objectives of the bank was to stabilizing domestic monetary value and maintaining a competitive external per value of Bangladesh taka towards fostering growth and development of the country’s productive resources in the best national interest. The bank’s functions as mentioned in the Bangladesh Bank Order 1972 and the Bangladesh Bank (Amendment) Act 2003 are: to formulate and implement monetary policy and to formulate and implement intervention policies in the foreign exchange markets; give advice to the government on the interaction of monetary policy with fiscal and exchange rate policy; hold and manage the official foreign reserve of Bangladesh to promote, regulate and ensure a secure and efficient payment system, including the issue of bank notes. 

Bangladesh Bank also regulates and supervises other banking companies and financial institutions in the country. However recently there are lots of debates on ‘the full autonomy of Bangladesh Bank’. This autonomy mainly means both the administrative and operational autonomy.

Central bank autonomy is a debatable issue especially in the developing country like Bangladesh. Since its introduction Bangladesh Bank- the central bank of the country is working under the tight supervision and control of the Ministry of Finance. It is very common that while a central bank work under the control of such political parties it cannot work properly. Because mission, objectives and interest of these political parties cannot be same as the interest of the central bank. Therefore government always tries to influence over the monetary policy of bank to gain only short-run political benefits. Whereas in the apex of the financial system, central bank should enjoy full autonomy to play roles for gaining long-term economic development through formulating and implementing appropriate monetary policy and supervising the financial institutions. Further it also may need to supervise the financial agenda of the party in power and accordingly advice the government too. Though recently National Parliament of Bangladesh has sanctioned some autonomy to the Bank, however government still have control over the Bank for the determination of interest rate, government borrowing, appointment of governor and the bank officials, right of issuing bank’s own instruments etc. Consequently Bangladesh Bank is enjoying only a partial or limited autonomy.