Role and function of nepal rastra bank

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MBA-IV, Uniglobe College, Kathmandu, Nepal

Transcript of Role and function of nepal rastra bank

  • 1. PRESENTED BY: KRISHNA CHALISE PAWAN KAWAN RITU JOSHI SARITA MAHARJAN SONA SHRESTHA Role of the Central Bank as Regulatory Authority of Financial Markets and Institutions

2. Presentation flow History of central bank n objective of NRB Sona Introduction Pawan Kawan Functions of NRB Ritu Role of NRB Krishna Conclusion - Sarita 3. History of Central Bank A central bank is the term used to describe the authority responsible for policies that affect a countrys supply of money and credit. More specifically, a central bank uses its tools of monetary policyopen market operations, discount window lending, changes in reserve requirementsto affect short-term interest rates and the monetary base (currency held by the public plus bank reserves) and to achieve important policy goals. 4. Contd. 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 precursor to modern central banks. The central bank of Sweden was founded in Stockholm from the remains of the failed bank Stockholms Banco in 1664 and answered to the parliament ("Riksdag of the Estates") thus making it the oldest central bank still operating today. 5. Contd. Although central banks today are generally associated with fiat money, the 19th and early 20th centuries central banks in most of Europe and Japan developed under the international gold standard, 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 those nations which did not as yet possess them, most notably in Australia. 6. Cont. The US Federal Reserve was created by the U.S. Congress through the passing of The Federal Reserve Act in the Senate and its signing by President Woodrow Wilson on the same day, December 23, 1913. Australia established its first central bank in 1920, Colombia in 1923, Mexico and Chile in 1925 and Canada and New Zealand in the aftermath of the Great Depression in 1934. 7. The People's Bank of China evolved its role as a central bank starting in about 1979 with the introduction of market reforms, which accelerated in 1989 when the country adopted a generally capitalist approach to its export economy. The most recent bank model, was introduced together with the euro, involves coordination of the European national banks, which continue to manage their respective economies separately in all respects other than currency exchange and base interest rates. Cont. 8. Nepal Rastra Bank, the Central Bank of Nepal, was established in 1956 under the Nepal Rastra Bank Act 1955, to discharge the central banking responsibilities including guiding the development of the embryonic domestic financial sector. Since inception, there has been a significant growth in both the number and the activities of the domestic financial institutions. Contd. 9. Nepal Bank Ltd. remained the only financial institution of the country until the foundation of Nepal Rastra Bank is 1956 A.D. Due to the absence of the central bank, Nepal Bank has to play the role of central bank and operate the function of central bank.. Nepal Rastra Bank makes various guidelines for the banking sector of the country. Contd. 10. Objectives of NRB To achieve price and balance of payments stability, manage liquidity and ensure financial stability, develop a sound payments system and promote financial services. To formulate necessary monetary and foreign exchange policies to maintain the stability in price and consolidate the balance of payments for sustainable development of the economy of Nepal 11. To develop a secure, healthy and efficient system of payments; To make appropriate supervision of the banking and financial system in order to maintain its stability and foster its healthy development; and To further enhance the public confidence in Nepal's entire banking and financial system. To promote entire banking and financial system of the kingdom of Nepal system. Contd. 12. Central Bank A central bank is a public institution that manages a state's currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the nation's monetary base, and usually also prints the national currency, which usually serves as the nation's legal tender. 13. Central Bank Cont Examples include the: Nepal Rastra Bank (NRB), Reserve Bank of India (RBI), European Central Bank (ECB), Bank of England, Bank of Japan, Federal Reserve of the United States, People's Bank of China etc. 14. NEPAL RASTRA BANK NRB, the central bank of Nepal, established in 1956 under the Nepal Rastra Bank Act 1955 is the monetary, regulatory and supervisory authority of banks and financial institutions. The new Nepal Rastra Bank Act 2002 which replaces the erstwhile Act has ensured operational autonomy and independence to the Bank. Key objectives of the Bank are to achieve price and balance of payments stability, manage liquidity and ensure financial stability, develop a sound payments system, and promote financial services. The Board of Directors, chaired by the Governor, is the apex body of policy making and the Governor also discharges his duty as the chief executive of the Bank. 15. NEPAL RASTRA BANK Vision To become A modern, dynamic, credible and effective Central Bank Mission To maintain macro-economic stability through sound and effective monetary, foreign exchange and financial sector policies. 16. NEPAL RASTRA BANK NRB Governors over the years S.N. Name of Governor Term of office 1. Mr. Himalaya Shumsher J.B. Rana April 26, 1956 February 7, 1961 2. Mr. Laxmi Nath Gautam February 8, l961 June 17, l965 3. Mr. Pradyuma Lal Rajbhandari June l8, l965 August 13, l966 4. Dr. Bhekh Bahadur Thapa August 14, l966 July 26, l967 5. Dr. Yadav Prasad Pant April 24, l968 April 28, l973 6. Mr. Kul Shekhar Sharma April 29, l973 December 12, l978 7. Mr. Kalyana Bikram Adhikary June 13, l979 December 8, l984 8. Mr. Ganesh Bahadur Thapa March 25, l985 May 22, l990 9. Mr. Hari Shankar Tripathi August 10, l990 January 17, l995 10. Mr. Satyendra Pyara Shrestha January l8, l995 January l7, 2000 11. Dr. Tilak Bahadur Rawal January l8, 2000 - January l7, 2005 12. Mr. Deependra Purush Dhakal August 29, 2000 April 27, 2001 13. Mr. Bijaya Nath Bhattarai January 31, 2005 January 30, 2010 14. Mr. Deependra Bahadur Kshetry January 15, 2009 July 26, 2009 15. Dr. Yuba Raj Khatiwada March 22, 2010 - 17. NEPAL RASTRA BANK Board of Directors As per section 14 of Nepal Rastra Bank Act, 2002, the Board of Nepal Rastra Bank (NRB) comprises of seven members: four ex officio members - the Governor (who is the Chairman), the Secretary, Ministry of Finance, two Deputy Governors, and three other Directors, who are appointed from amongst the persons renowned in the field of Economics, Monetary, Banking, Finance and Commercial Laws. The Governor, Deputy Governors and other Directors are appointed by Government of Nepal, Council of Ministers for term of five years. Government may, reappoint the retiring Governor for another one term and the retiring other Directors for any term, if it is deemed necessary. 18. Functions of a Central Bank 1. Bank of Note Issue: The 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 main advantages of giving the monopoly right of note issue to are : (i) Brings uniformity in the monetary system of note issue and note circulation. (ii) Increases public confidence in the monetary system. (iii) Enables the central bank to exercise control over the creation of credit by the commercial banks. 19. 2. Banker, Agent and Adviser to the Government: The central bank functions as a banker, agent and financial adviser to the government, a) As banker to government, the central bank maintains the accounts of the central as well as state government, receives deposits from it, makes short-term advances and collects cheques and drafts deposited in the government account. b) As an Agent to the government, the central bank collects taxes and raises loans from the public and thus manages public debt. c) As a financial adviser to the lent, the central bank gives advise to the government on economic, monetary, financial and fiscal matters. Functions of a central bank 20. Functions of a central bank 3. Bankers' Bank: 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 banks 21. Functions of a central bank 4. Lender of Last Resort: In case if the commercial banks are not able to meet their financial requirements from other sources, they can, as a last resort, approach the central bank for financial accommodation. - It increases the elasticity and liquidity of the whole credit structure of the economy. - It provides financial help to the commercial banks in times of emergency. - It enables the central bank to exercise its control over banking system of the country. 22. Functions of a central bank 5) Clearing Agent : The function of clearing house in the central bank has the following advantages: (i) It economies the use of cash by banks while settling their claims and counter-claims. (ii) It reduces the withdrawals of cash and these enable the commercial banks to create credit on a large scale. (iii) It keeps the central bank fully informed about the liquidity position of the commercial banks. 23. Functions of a central bank 6. Credit control: - The significance of the functi