PRESENTED BY:KRISHNA CHALISEPAWAN KAWANRITU JOSHISARITA MAHARJANSONA SHRESTHA

Role of the Central Bank as Regulatory Authority of Financial

Markets and Institutions

Presentation flow

History of central bank n objective of NRB –Sona

Introduction – Pawan KawanFunctions of NRB – RituRole of NRB – KrishnaConclusion - Sarita

History of Central Bank

• A central bank is the term used to describe the authority responsible for policies that affect a country’s supply of money and credit.

• More specifically, a central bank uses its tools of monetary policy—open market operations, discount window lending, changes in reserve requirements—to affect short-term interest rates and the monetary base (currency held by the public plus bank reserves) and to achieve important policy goals.

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.

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.

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.

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….

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.

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.

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

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….

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.

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.

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.

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.

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 -

NEPAL RASTRA BANK

Board of DirectorsAs 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.

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.

Functions of a central bank

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

Functions of a central bank

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

Functions of a central bank

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.

Functions of a central bank

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.

Functions of a central bank

Functions of a central bank

6. Credit control: - The significance of the function has increased

so much that for property understanding. The central bank has acquired the rights and powers of controlling the entire banking.

- Central bank can adopt various quantitative and qualitative methods for credit control such bank rate, open market operation, changes in reserve ratio selective controls, moral situation etc.

Functions of a central bank

Functions of a central bank

7. Collection of Data: Central banks collects statistical data

regularly relating to economic aspects of money, credit, foreign exchange, banking, economic growth etc.

Role of Central Bank

Control of the money supplyStabilizing the money and capital marketsLender of Last resortMaintaining and improving the payments

mechanismMaintaining a sound banking and financial

systemCarrying out monetary policyProviding information to the public

Control of the money supply: Central bank plays several important

role in a modern economy. The most important role is control of the money supply. To control the inflation To change the economic activity To influence the growth rate of

economy as a whole

Stabilizing the money and capital markets: Another important role of central bank is

stabilizing the money and capital markets. If the financial markets are unruly, with more fluctuation in interest rates and securities prices or financial institutions are prone to frequent collapse, public confidence in the financial system might be lost.

Contd…..

Cont…

The flow of funds would dry up, resulting in a drastic slowing in the rate of economic growth and a rise in unemployment.

Central bank play a vital role in fostering the mature development of financial markets and in ensuring a stable flow of funds through those markets

Contd….

Lender of Last resort: Sometime, financial institutions may

face the problems of funds. When alternative sources of funds dried up, the central bank provides the funds to the financial institutions as per their needs at the time of financial crisis to solve the problem.

Contd…

Maintaining and improving the payments mechanism:This involves clearing chequesProviding adequate currency Wiring fundsPreserving confidence in the value of

monetary units

Contd…

Maintaining a sound banking and financial system:

By serving as a lender of last resortBy providing reserves to depositary

institutions

Contd…

Carrying out monetary policy: Various tools are used to carry out the

monetary policy:Deposit reserve requirementDiscount ratesOpen market operation etc

Contd…

Providing information to the public:Information related current economic

and financial developments and changes in policies etc.

Daily, weekly, monthly, quarterly etc.

Contd…

A central bank is a public institution that manages a state's currency, money supply, and interest rates.

NRB-the central bank of Nepal-established in 1956 -Nepal Rastra Bank Act 1955

It is the monetary, regulatory and supervisory authority of banks and financial institutions.

The new NEPAL RASTRA BANK ACT 2002 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.

Contd…..

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. 

Central bank plays the role of : Banker, Agent and Adviser to the Government, Bankers' Bank, Lender of Last Resort, Clearing Agent Credit controller Collection of Data Bank of Note Issue

Contd…..

The major objectives of the central bank are to achieve price and balance of payments stability, manage liquidity, ensure financial stability, develop a sound payments system, promote financial services, formulate necessary monetary and foreign exchange policies, make appropriate supervision of the banking and financial system in order to maintain its stability and foster its healthy development, enhance the public confidence in banking and financial system and promote entire banking and financial system of the nation.