Business Report on Central Bank and it's functions : Bangladesh Bank

CENTRAL BANK OF BANGLADESH:
BANGLADESH BANK

CENTRAL BANK OF BANGLADESH: BANGLADESH BANK
ON
REPORT ON

Prepared for
Palas Saha
Assistant Professor, Institute of Business Administrator
Jahangirnagar University
Prepared by:
Group 1
Member’s Name
Nowreen Sharif
Nurul Islam
Md. Ismail
Hossain
Fara Ul Fath
ID No.
1911
1944
1956
2215
Date of Submission- June19, 2019
Remarks

Letter of Transmittal
June 19,2019
Palash Saha
Assistant Professor,
Institute of Business Administration,
Jahangirnagar University
Subject: Submission of the report on "Central Bank of Bangladesh: Bangladesh Bank”.
Dear Sir,
It is an honor and immense pleasure for us to present our Report on Central Bank of Bangladesh:
Bangladesh Bank’. This report was assigned to our group as a partial requirement of the course named
“FIN 402: Financial Institutions and Markets” of B.B.A program under Finance major or minor Course of
the Institute of Business Administration, Jahangirnagar University.
This study has given the opportunity to gain knowledge about functions of the central bank of a country.
The knowledge we have gathered through this study will help us in our real life and future carrier, indeed.
We would like to convey our special thanks and gratitude to you for patronizing our effort & for giving us
proper guidance and valuable advice throughout the semester. We have tried our best to cover all the
relevant fields, basic sections plus changing rules, regulations, and conditions. We earnestly request you
to call us if you think any further work should be done on the topic that you have chosen for us.
Sincerely,
Fara Ul Fath
On behalf of the group
26th
Batch, Institute of Business Administration
University of Dhaka
ii
-

Table of Contents
Contents
Executive Summary.
Chapte
Topic v
Page
1
2
Introduction:
1.1 Origin of the report
1,2 Objective of the report
1,3 Methodology
1.4 Limitation
1.5 Establishment
1,6 Vision
1,7 Mission
Core Policies of the Bangladesh Bank:
2 J Monetary Policy
2.1,1 Scope of Monetary Policy
2,1,2 Objectives of Monetary Policy in Bangladesh
2,1,3 Instruments
2.1.4 Repo and Reverse Repo Auctions
2,1,5 Bangladesh Bank Bill Auctions
2,1,6 Treasury Bills and Bonds Auctions
2,1,7 Cash Reserve Requirement Ratio and Statutory Liquidity
Ratio
2,1,8 Exchange Rate Interventions and Reserves
2,1,10 Interest Rate Channel
2,1,11 Transmission Channels
2,1,9 Targeted Refinancing Lines
2,1,12 Exchange Rate Channel
2.1,13 Asset Price Channel
2.1,14 Credit Channel
2.1,15 Analysis
2,2 Reserve Management Strategy
2,3 Capital Adequacy for Banks and Financial Institutions
2.4 Interest Rate Policy
2.5
Deposit
Insuran
ce
2,6
Insuran
ce
Authorit
y
2.7
Regulat
or of
Capital
Market
Interme
diaries
iii

1
2
2
2
2
2
2
3
4
5
5
5
6
6
7
7
7
7
7
8
8
8
8
8
9-12
12
13
13
13
14
14

3
4
2.8 Regulator of Micro Finance Institutions
Functions of Bangladesh Bank:
3,1 Credit Control by Central Bank
3,1,1 Objectives
3,1.2 Methods of Credit Control
3,1,3 Quantitative Controls
3.1,4 Qualitative Controls
3,2 Issue of Currency/Notes
3.3Clcaring House
3,4 Currency Management
3,4,1 Currency Management Division's Functions
3.4.2 Exchange Rate Policy
3.5 E-Services
3.5.1 Time Scries (Economic Data)
3.5.2 Online CIB Services
3,5,3 Online Agent Information Management System
3.5.4 Reporting goAML
3.5.5 Web Upload
3.5.6 Price bond Matching
3,5,7 Dispute Management System for Payment Card
Transactions (NPSB-DMS)
3.5.8 Online Foreign Exchange Transaction Monitoring System
3,5.9 Bangladesh Bank eTendcr System
3,5,10 eReturns
3,5,11 Special Foreign Currency Account Monitoring
Systcm(SFCAMS)
3,5,12 Information for Deposit Insurance Premium Assessment
(IDIPA)
3.5,13 Corporate Memory Management Systems (CMMS)
3.5.14 e-statement forCRR & SLR
3,6 Performing Act in Favor of Government
Development Activities:
4.1 Institutional Development
4.3Automation and Technological Development
4.2Regulatory Development
Conclusi
on
Bibliogr
aphy

15
16
17
17
17
18-20
20-22
23-25
25
26
26
26
27
27
27
27
27
28
28
28
28
29
29
29
29
30
30
30-31
32
33
33-34
34-35
36
36
IV

Executive Summary
We were assigned to study and prepare a report on the central bank of Bangladesh, which is
commonly known as the Bangladesh Bank. In the introductory part, we briefly described the
history, establishment, mission and vision of Bangladesh Bank in precise words.
In the second section, we examined the arrangements of Bangladesh Bank. We characterized its
money related arrangement alongside the degrees and targets, save the executives methodology,
loan cost approach, capital sufficiency for banks and monetary foundations, store protection,
protection authority, regulation of capital market mediators, guideline of smaller scale account
and a few different strategies.
In the following chapters, we talked about the functions and development strategies of the bank
in short. Finally, we concluded by describing the significance of Bangladesh Bank in our
economy.
v

Acknowledgement
At first, we would like to thank the mightiest and our parents. Without their blessing, we could
not he successful in completing the study. We would like to thank our honorable course teacher
of Institute of Business Administration-JU, Palash Saha for providing us such an opportunity to
prepare the Report on ‘Central Bank of Bangladesh: Bangladesh Bank’. Without his
accommodating direction, the fulfillment of this report was unimaginable. During our readiness
of the report work, we have come to strong bit of various people and companions and experts
who loaned their thoughts, time and minding direction to enhance the report's substance. We need
to pass on our heartiest appreciation to them for their important reactions.
vi

Chapter -1
Introduction
(This page is left blank intentionally. Please go to the next page for further contains)
Page | 1

1.1 Origin of The Report
The report prepared for the requirement of course FIN 402, Financial Institutes and Markets
1.2 Objective of The Study
a. The primary objective of the report is the completion of our course FIN 402
b. To gather knowledge about the implication of law of banking in real life situation.
1.3 Methodology
We have collected information mainly from Bangladesh Bank website and some other secondary
websites. We also read the text thoroughly form the course text book selected by our honorable
course instructor and prepared this report in accordance with the collected data.
1.4 Limitation
o Lack of time
o Lack of usable information (primary source)
1.5 Establishment
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 Motijhccl. Sadarghat, Chittagong, Khulna, Bogra, Rajshahi, Sylhct, Barisal, Rangpur
and Mymensingh in Bangladesh; total manpower stood at 5807 (officials 3981, subordinate staff
1826) as on March 31, 2015.
1.6 Vision
To grow persistently as a forward-looking national keep money with skilled and submitted experts

of high moral principles, directing fiscal administration and monetary area
Page | 1

supervision to maintain price stability and financial system robustness, supporting rapid broad
based inclusive economic growth, employment generation and poverty eradication in
Bangladesh.
1.7 Mission
• Bangladesh Bank is doing its following fundamental capacities as the nation's national bank:
• Figuring money related and credit strategies;
• Overseeing money issue and directing installment framework;
• Overseeing remote trade holds and managing the outside trade showcase; Directing and
administering banks and budgetary organizations, and prompting the legislature on
associations and effects of financial, money related and other monetary arrangements
Bangladesh Bank’s functions are forward looking, proactive, responsive and consultative
manner. In our aspiration for ever higher standards of performance we are aware of our
limitations in independence, logistics, professional know-how and appropriateness of skill sets in
staffing; Bangladesh Bank is trying to overcome these limitations.
Page | 3

Chapter-2
Core Policies of the Bangladesh Bank
Page

2.1 Monetary Policy
It is the process by which the monetary authority of a country controls the supply of money,
often targeting an inflation rate or interest rate to ensure price stability and general trust in the
currency
2.1.1 Scope of Monetary Policy
Monetary decisions today take into account a wider range of factors, such as:
Short term interest rates
Long term interest rates
Velocity of money through the economy
Exchange rates
Credit quality
Bonds and equities (corporate ownership and debt)
Government versus private sector spending/savings
International capital flows of money on large scales
Financial derivatives such as options, swaps, futures contracts, etc.
2.1.2 Objectives of Monetary Policy in Bangladesh
As stated in the Bangladesh Bank Order 1972. the principal objectives of the country's monetary
policy are:
a. to regulate currency and reserves
b. to manage the monetary and credit system
c. to preserve the par value of domestic currency
d. to promote and maintain a high level of production, employment and real income
e. to foster growth and development of the country's productive resources in the
best national interest.
Although the long-term focus of monetary policy in Bangladesh is on growth with stability, the
short-term objectives arc determined after
economic situation of the country.

a careful and realistic appraisal of the
current
Page | 5

2.1.3 Instruments
To reach its reserve money target, Bangladesh Bank controls liquidity in the market on a day-to-
day basis using-
repo and reverse repo auctions
Bangladesh Bank bill auctions
Treasury bill and bond auctions
the cash reserve requirement ratio
the statutory liquidity ratio
foreign exchange markets
to reduce volatility in the BDT exchange rate to other currencies. In addition, the central bank’s
toolbox includcs-
targeted refinancing lines
mandatory credit quotas
to steer credit allocation in the economy, as well as a variety of regulatory measures to promote
financial inclusion, inclusive growth and environmental stability.
2.1.4 Repo and Reverse Repo Auctions
A repo (reverse repo) is a financial transaction, where banks borrow (lend) money from (to) the
central bank, usually overnight, at a prc-dctcrmincd policy rate set by Bangladesh Bank against
the collateral face value of government treasury bills and bonds. Current repo and reverse repo
rates stand at 6.00% and 6.75% respectively.
2.1.5 Bangladesh Bank Bill Auctions
Bangladesh Bank bills are mainly used to sterilize the impact of foreign exchange purchases.
They have a maturity of 30 days. Interest paid by Bangladesh Bank on 10 years maturity
treasury bond instruments currently (2019) amounts to 7.540% to 7.740%.

2.1.6 Treasury Bills and Bonds Audio
Treasury bills and bonds arc short-term and long-term obligations issued by Bangladesh Bank on
behalf of the Government of Bangladesh. The objectives of issuing these securities arc twofold:
i) to finance the government deficit and ii) to reduce excess liquidity in the market. The different
maturities of treasury bills arc 3 months, 6 months and one year. Maturities of the treasury bonds
arc 2 years, 5 years, 10 years, 15 years and 20 years.
2.1.7 Cash Reserve Requirement Ratio and Statutory Liquidity Ratio
Bangladesh Bank also pursues its monetary policy objectives through changes in the cash reserve
requirement ratio and/or the statutory liquidity ratio. By amending these ratios, the central bank
requires banks to maintain more or less liquidity to cover their total demand and term liabilities
to customers. In 15th April 2018, Bangladesh Bank increased the cash reserve requirement ratio
5.5% for commercial banks on bi-weekly average basis from the existing 6.5%.
2.1.8 Exchange Rate Interventions and Reserves
To reduce volatility in the exchange rate of the BDT to other currencies, Bangladesh Bank also
intervenes in foreign exchange markets. It does so by purchasing or selling foreign currencies in
the domestic market.
2.1.9 Targeted Refinancing Lines
With a targeted refinancing line, Bangladesh Bank offers commercial banks to refund themselves
at reduced interest rates for loans given to priority segments of the economy. In contrast to
outright subsidies, they rely on the private sector as a gatekeeper the allocation of capital. The
default risk remains with the banking sector.
2.1.10 Transmission Channels
Monetary policy influences the real economy through different transmission channels. The main

ones arc: the interest rate channel, the exchange rate channel, the asset price channel, and the
credit channel — with the latter being divided into the bank lending channel and the balance
sheet channel.
Page | 7

2.1.11 Interest Rate Channel
Central banks use the interest rate channel to stimulate or restrain the demand for investments by
firms and durable goods consumption by households. For the interest rate channel to work, three
conditions have to be met: i) the central bank must be able to influence short-term nominal
interest rates, ii) the financial system has to be efficient to adjust long term nominal interest rates
accordingly, and iii) firms and households’ investment and durable goods consumption must
react to real interest rate changes. Several market frictions indicate that these conditions may not
be met in Bangladesh.
2.1.12 Exchange Rate Channel
By influencing exchange rates, directly through interventions or indirectly through interest rates,
Bangladesh Bank can also seek an impact on the real economy through the exchange rate
channel. When domestic nominal interest rates rise more than their foreign counterparts,
equilibrium in the foreign exchange market requires that the domestic currency gradually
depreciates.
2.1.13 Asset Price Channel
Moreover, monetary policy can have an impact on output through the relationship between asset
prices and the investments of firms as well as the consumption of households. Everything being
equal, an increase in the short-term nominal interest rate induced by the central bank makes debt
instruments more attractive than equities. Equilibrium across securities markets is re-established
through a fall in equity prices. This makes investments costlier for firms as they have to issue
more shares to raise equity for new projects. In addition, households’ wealth declines, causing
less consumption. Both effects lead to a fall in demand.
2.1.14 Credit Channel

The credit channel theory is based on the premise that, when there are frictions in financial
markets, funds raised externally by a bank are costlier than funds raised internally (e.g. through
retained earnings), that is to say there is an external finance premium. According to the credit
channel theory, monetary policy does not only influence the general level of interest rates but
Page | 8

also, the size of the external finance premium. Two mechanisms have been suggested to
explain this: the balance sheet channel and the bank lending channel.
Growth Outcome'. The Gross Domestic Product (GDP) in Bangladesh expanded 6.51 percent in
2015 from the previous year. GDP Growth Rate in Bangladesh averaged 5.66 percent from 1994
until 2015 reaching an all-time high of 6.63 percent in 2006 and a record low of 4.08 percent in
1994. GDP Growth Rate in Bangladesh is reported by the Bangladesh Bank.
BANGLADESH GDP GROWTH RATE
Inflation Outcome Consumer prices in Bangladesh increased 5.4 percent ycar-on-ycar in June of
2016, following 5.53 percent grow th in the previous month. Cost of food rose 4.35 percent
(+4.23 percent in June) while prices of non-food went up 6.98 percent (+7.5 percent in June).
The inflation stayed below the government's target of 5.8 percent for 2017 fiscal year. Inflation
Rate in Bangladesh averaged 6.65 percent from 1994 until 2016. reaching an all-time high of 16
percent in September of 2011 and a record low of -0.03 percent in December of 1996. Inflation
Rate in Bangladesh is reported by the Bangladesh Bureau of Statistics.
Page | 9

Ba n g l a de s h i n f l a t i o n fcATF
Monetary and Credit Growth Outcome'. Sticking to its cautious stance, Bangladesh Bank has cut
private sector credit growth target, kept policy rates unchanged, created fund for promoting
manufacturers and exporters, and planned to increase broad money supply. Private sector credit
growth is projected to grow at 14,3% for the next six months, down from the previous monetary
policy. Credit growth to the private sector stood at 13,6% by June, falling short of target of
15,5% set in the previous monetary policy.
Externa! Sector Outcome. Interest Rates and Exchange Rates The central bank of Bangladesh
remained interest rate unchanged at 6.75 percent on July 26th but said it would adjust monetary
growth and rates if necessary, to keep inflation around 6 percent. The reverse repo rate was
also kept at 4.75 percent. Interest Rate in Bangladesh averaged 7.25 percent from 2008 until
2015, reaching an all-time high of 8,75 percent in September of 2008 and a record low of 4.50
percent in October of 2009. Interest Rate in Bangladesh is reported by the Bangladesh Bank,
BANGLADESH INTEREST PATE
7.2
7
6-8
Apr 1 Jul 1 Oct 1 Jan 1
Page | 10

Page | 11
A. Inter-bank exchange rates as on Jun 16, 2019:
Currency Day´s lowest Day´s highest
USD 84.5000 84.5000
B. Cross rates as on Jun 16, 2019:
Currency Buying Selling
EUR 94.6992 94.7330
GBP 106.3855 106.4193
AUD 58.0684 58.0853
JPY 0.7782 0.7784
CAD 62.9892 63.0080
SEK 8.9055 8.9083
SGD 61.6204 61.6428
CNH 12.1923 12.1958
INR 1.2097 1.2104

Oct 2015 Jan 2016 ipr 2C It
Money Supply: Money Supply Ml jn Bangladesh increased to 1740413 BDT Million in April
from 1714972 BDT Million in March of 2016, Money Supply Ml in Bangladesh averaged
310021.13 BDT Million from 1974 until 2016, reaching an all-time high of 1740413 BDT
Million in April of 2016 and a record low of 6267 BDT Million in April of 1975. Money Supply
Ml in Bangladesh is reported by the Bangladesh Bank.
2.2 Reserve Management Strategy
Bangladesh Bank maintains the foreign exchange reserve of Bangladesh in different currencies
so that it could minimize the risk from widespread fluctuation in exchange rate of major
currencies and irregular movement in interest rates in the global money market.
The hank has established Nostro account arrangement w ith different central banks in the country.
Funds accumulated in these accounts arc invested in treasury bills, repos and other government
papers in the respective currencies. The bank also makes investment in the form of short-term
deposits with different high-rated and reputed commercial banks and purchase of high-rated
sovercign/supranational/corporatc bonds.
A separate department of Bangladesh Bank performs the operational functions regarding
investment, which is guided by investment policy set by the Bangladesh Bank’s investment
Page | 12
□

committee head by a Deputy Governor. The underlying principle of the investment policy is to
ensure the optimum return on investment with minimum market risk.
2.3 Capital Adequacy for Banks and Financial Institutions
In both these sectors, Basel 11 Accord has been introduced to strengthen the capital base of banks
and financial institutions. On January 1st, 2010, the full implementation of Basel 11 Accord
began for banks. Now, scheduled banks in Bangladesh arc required to maintain Tk. 4 billion or
10% of Total Risk Weighted Assets as capital, whichever is higher.
For financial institutions, full implantation of Basel H began in January 1st, 2012. Now, financial
institutions in Bangladesh arc needed to maintain Tk. I billion or 10% of Total Risk Weighted
Assets as capital, whichever is higher.
2.4 Interest Rate Policy
Under the financial sector reform program, banks are free to charge/fix their deposit and lending
rates other than export credit. At present, except pre-shipment export there is no interest rate cap
lending for banks yet banks can differentiate interest rate up to 3% considering comparative risk
elements involved among borrowers in same lending category.
2.5 Deposit Insurance
The deposit insurance scheme (DIS) acts as a safety net for depositors. It was introduced in
Bangladesh in August, 1984. The DIS was created 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
case of a bank failure.
Apart from DIS, a deposit insurance trust fund (D1TF) has been created for providing some
protection to small depositors in case of a bank failure, but the amount must not exceed Taka 0.01

million. The Trustee Board for the D1T1’ is the Board of Directors of the Bangladesh Bank.
Page | 13

2.6 Insurance Authority
The Insurance Development and Regulatory Authority (1DRA) replaced its predecessor, Chief
Controller of Insurance on January 26, 2011. It was instituted as the regulator of insurance
industry and is empowered by Insurance Development and Regulatory Act of 2010, 1DRA
operates under the Ministry of Finance and a four-member executive body led by the Chairman.
S/he is responsible for the general supervision and direction of business,
IDRAs mission is to protect the interest of policy holders and other stakeholders under insurance
policy. It also supervises and regulates the insurance industry and ensures the orderly and
systematic growth of the insurance industry.
2.7 Regulator of Capital Market Intermediaries
Securities and Exchange Commission (SEC) was established on June 8, 1993. It is a five-
member commission headed by a Chairman. S/he has the responsibility to administer securities
legislation. The Commission is attached to the Ministry of Finance.
The aim of SEC is to protect the interests of security investors, to develop and maintain fair,
efficient and transparent securities market. It also ensures proper issuance of securities and
compliance with securities laws. Some of the functions of the SEC arc regulation of the Stock
Exchange or other securities market, registration and regulation of stock-brokers, sub-brokers,
share transfer agents, merchant bankers and managers of issues, trustee of trust deeds,
underwriters, investment advisors and other intermediaries in the securities market.
Along w ith that, the SEC also prohibits fraudulent and unfair business practices in the securities
market. It promotes investor’s education and provides training for intermediaries of the securities
market. It also prohibits insider trading in securities. Regulation of the substantial acquisition of
shares and take-over of companies is another of the functions of the SEC along with the

undertaking of investigation and inspection, inquiries and audit of any issuer or dealer of
securities, the Stock Exchange and intermediaries and any self-regulatory organization in the
securities market.
Page | 14

2.8 Regulator of Micro Finance Institutions
This institution came into being to bring NGO-MFIs (Non-govemment Microfinance
Institutions) under a regulatory framework. Under the Microcredit Regulatory Authority Act,
2006, the government established Microcredit Regulatory Authority (MRA) with a view to
ensure transparency and accountability of microcredit activities of the N GO-MFIs in
Bangladesh. This authority is empowered and responsible for implementing this act and to bring
the microcredit sector of Bangladesh under a full-fledged regulatory framework.
The mission of MRA is also to foster sustainable grow th of this sector. To achieve this mission,
the MRA has set itself the task to attain the follow goals:
Implement and formulate the policies of good governance and transparent financial
system of MFIs.
Provide training to NGO-Mb'ls and linking them with the broader financial market to
facilitate sustainable resources and efficient management.
Conduct in-depth research on critical microfinance issues and provide policy inputs to the
government consistent with the national strategy for poverty eradication.
Assist the government to build an inclusive financial market for the economic
development of Bangladesh.
Identify the priorities of the micro-finance sector for policy guidance and dissemination
of information to attain the MRAs social responsibility.
According to this particular act, the MRA is responsible for three primary functions namely:
Supervision of MFIs to ensure they continue to comply with the licensing requirements.
Licensing of MFIs w ith explicit legal powers.
Enforcement of sanctions in the event of any MFI failing to meet the licensing and
ongoing supervisory requirements.

Chapter-3
Functions of Bangladesh Bank
Page | 16

3.1 Credit Control by Central Bank
Monetary policy refers to the control of credit and total money supply. This policy is also known
as the central bank’s policy in control of credit. Control of money supply is very important for
the economic growth of a country. If there is excess supply of money, then the result will be
inflation whereas tight control over money may cause depression and unemployment. Therefore,
monetary policy is implemented to achieve various objectives such as achievement of price
stability, increase employment opportunities, stimulate economic growth, achieve stable rate of
the currency and increase in investment. Monetary policy is implemented by the central bank and
it uses different methods for this purpose.
3.1.1 Objectives
The objectives of credit control of monetary policy have been different at different times in
different countries according to the economic situations and problems faced by them. In the
modern times economic development with monetary stability is accepted as the most important
goal of credit control. The main objective of this credit-control function is to save economy from
inflation and deflation and to stabilize the economy and prices.
3.1.2 Methods of Credit Control
Credit control is one of the most important responsibilities of a central bank. Central bank of a
country can control credit by following two methods.
'-----------------------------------
i. Bank Rate Policy
ii. Open Market Operations
iii. Variable Reserve Ratios
i. Moral Persuasion
ii. Method of Publicity
*

iii. Direct Action
iv. Rationing of Credit
Consumer’s Credit Control
* Change in Marginal Rate of Security Credit
Page | 17

3.1.3 Quantitative Controls
Quantitative controls arc used to expand or contract the total quantity (overall size) of credit.
These controls are of the following kinds:
i.
ii.
iii.
Bank rate policy
Open market operations
Variable reserve ratios
These are explained as below-
i. Bank Rate (or Discount Rate) Policy
Bank rate is the rate at which central bank rediscounts bill of exchange or provides credit to
commercial banks. For controlling credit central bank may increase or decrease bank rate. When
bank rate is raised, other bank's interest rates on advances also move up. When bank rate is
decreased, other banks' interest rates on advances also go down. Borrowing from banks is
discouraged or encouraged and. as a result,
increases.
the rate of monetary expansion decreases or
Increase of bank
rate
■
Decrease of bank
rate
increase the
interest rate of
other bank
Decrease the
interest rate of
Decrease the
interest of taking
loan
Increase the
interest of taking
r Decrease the credit
in market
z r
increase the credit
in market
other bank loan
Page | 18

ii. Open Market Operation
When the central bank purchase or sale government securities in the open market such as stock
exchange it is called open market operation. If central bank wants to reduce the money supply in
country, it sells government securities to the commercial banks and people. In this way the
amount of cash with people and commercial banks is reduced due to w hich commercial banks
decrease the number of loans whereas people’s demand for goods and services shrinks.
Similarly, if the central bank wants to increase the money supply it purchases government
securities due to the amount ofcash with commercial banks and people increases.
Sale of bond and Transferring of Decrease of Decrease the
?
securities in open
market
Purchase of bond
and securities in
open market
money from
> commercial bank
to central bank
Transferring of
money from
central bank to
lending power of
banks
L_________________ J
Decrease of
lending power of
banks
amount of credit
in the market
increase the
amount of credit
in the market
commercial bank
in. variable Reserve Ratios
The amount of money which the banks arc legally required to keep with the central bank is
termed legal cash reserve ratio or requirement. It is a certain percentage of deposits. If the cash
reserve ratio is raised, say from 6% to 8% of total deposits, the lending and financing power of
banks will contract accordingly. This will cause fall in the rate of money expansion. A decrease
in ratio say from 8% to 6% of total deposits, the lending and financing power of banks will
increase.
Page | 19

increase of rate
of reserve
Transferring of
more money from
commercial bank
Decrease the
lending power of
commercial bank
Decrease the
amount of credit
in the market
to central bank
Decrease of rate
of reserve
Transferring of less
money from
commercial bankto
Increase the
lending power of
commercial bank
Increase the
amount of credit
in the market
central bank
3.1.4 Qualitative Controls
Qualitative controls include:
i.
ii.
iii.
iv.
v.
vi.
Moral persuasion
Method of publicity
Direct action
Rationing of credit
Consumer’s credit control
Change in marginal rate of security credit
Selective controls arc mainly, aimed at influencing the direction or distribution of credit.
i. Moral Persuasion
By virtue of its special position, the central bank can persuade commercial banks to follow a
specific credit policy. In this connection the central bank can employ oral or written appeals or
warnings. By moral persuasion Central bank give suggestion or advice to the listed bank. Central
bank is the guardian of all banks. So, sometimes it gives advice or suggestion to the listed bank
Page | 20
*

w hich the listed banks should follow. For example- At the time of dangerous flood, Central Bank
tries to encourage the listed commercial banks to lend in the agricultural sector. It may increase
the rate of loan in the specific sector.
ii. Publicity
The central bank through its different publications may give publicity to desirable credit policy
in the form of a few broad principles. The banks may take guidance from this in respect of their
lending and financing operations. By this the Central Bank make the listed banks know about the
present economic, banking or other situations. Through this the listed banks know the situations
and take steps to cope with the situation.
iii. Direct Action
If commercial banks do not follow the credit guidelines of central bank, then central bank can
impose a penalty or refuse to discount bill of exchanges of commercial banks. It is called the
direct action policy. The central bank can take the following direct actions towards the listed
banks-
It can charge excess interest.
It can direct for keeping extra reserve.
It can withdraw the credit facility.
It can also w ithdraw the clear housing facility.
iv. Rationing of credit
In order to keep the total credit expansion within desirable limits, the central bank may
recommend ceilings (an upper limit) on the overall credit extended by each commercial bank. By
this policy the central bank direct the listed commercial banks to allot a specific amount of loan
for a specific sector. Through this it can increase or decrease the amount of loan in the specific

factor. Central bank uses credit rationing to fix the credit ceiling allowed for each and every
commercial bank. It means that central bank fixes the credit limit for each commercial bank and
does not give credit to them beyond that limit. Whenever the central bank desires to decrease the
Page | 21

money supply it decreases the limit up to which it can give loans to the member banks. Similarly,
central bank can increase the money supply by increasing the credit limit.
v. Consumer’s credit control
Consumer credit facility refers to the act of selling a consumer good on a credit basis to the
people. The method is used by government or central bank to implement certain regulations on
goods sold on credit. This kinds of loans are paid on installments. By increasing or decreasing
the installment, the central bank can control the credit. For example- The down payment of a
loan is 20% and the remaining should be paid in in 20 installments within 20 months. Now if the
central bank increases the down payment to 30% and the remaining should be paid in in 10
installments within 10 months, the customers w ill normally be discouraged.
vi. Change in marginal rate of security credit
Every commercial bank has to keep a margin whenever it extends loans against the security. It
means that the amount of loan is lower than the actual value of security. For example, actual
value of security is 100 and the amount of loan is 85, therefore margin requirement is 15%.
Central bank can increase or decrease the money supply by changing the margin requirements.
For example, if central bank wants to decrease the money supply it can do so by increasing the
margin requirements. In this way amount of loans decreases and by this the central bank can
control the credit.
Page | 22

3.2 Issue of Currency/Notes
The central Bank is given the sole monopoly of issuing currcncy/notes in order to secure control
over volume of currency and credit. These notes circulate throughout the country as legal tender
money. It has to keep a reserve in the form of gold and foreign securities as per statutory rules
against the notes issued by it.
When the central government expenditure exceeds government revenue and the government is
unable to reduce its expenditure, then it borrows from the central Bank. This is done by selling
security bills to central Bank which creates new currency notes for the purpose. This is called
monetization of budget deficit or deficit financing. The government spends new currency and
puts it into circulation to meet its expenditure.
In the perspective of Bangladesh, since the central Bank of Bangladesh is "Bangladesh Bank", so
for issuing currency/notes. there needs to follow the rules and regulations of Bangladesh Bank
which is given below:
Currency and Bank Notes (Issued in Consultation with the Bangladesh Bank)
Denominations of Notes:
Under the provisions of the Bangladesh Bank Order, 1972, the sole right to issue Bank
notes in Bangladesh has been vested in the Bangladesh Bank.
Bank notes issued by the Bangladesh Bank will be of the denominated values of five
taka, ten taka, twenty taka, fifty taka, one hundred taka and five hundred taka unless
otherwise directed by the Government, on the recommendation of the Board of the Bank.
Bank notes arc legal tender throughout Bangladesh.
One and two taka notes issued by the Government are unlimited legal tender, and.
although these notes arc treated as Taka coin for all purposes, the instruction contained in

the following paragraph will, save where the contrary intention appears, apply to these
notes as they apply to Bank notes.
Receipt and Issue of Notes:
The form of currency demanded by the public should be supplied freely.
Page | 23

No restrictions are imposed on the issue of notes at the Bank in exchange for coin or for
notes of other denominations.
Although no person has a legal claim to obtain coin for notes presented at the Bank, this
accommodation should he given whenever possible, and all applications for exchange
should be granted, provided that the coins or notes applied for arc available, subject to
any general or special limitations which the Bangladesh Bank or the Government may
find it necessary to impose from time to time.
Subject to any limitations which may be imposed in particular cases, the Bank should,
whenever it is satisfied that no inconvenience will be caused to the Bank, exhibit in some
conspicuous place a placard notifying that the Bank is prepared to give coin for notes.
Whenever there are reasons to believe that notes arc selling in the local market at a
discount or a premium in large amounts, the Bank should at once bring the fact to the
notice of the currency officer.
The ordinary exchanges with the public mentioned in paragraphs 43 to 45 above should
be made from the cash balance is insufficient to meet the demand forexchanges, Taka or
notes of the required denominations may be obtained from the currency chest.
It is desirable from the point of view of the popularity of the note issue that clean notes
only should be put into circulation. This has, at the same time, the advantage of making it
more difficult for forged notes to escape detection, as these arc frequently intentionally
soiled or smudged in order to conceal their defects. Currency officer will arrange to keep
the Bank supplied w ith sufficient stock of clean notes in order to meet all probable
demands. Notes much soiled, defaced or torn should not in any case be re-issued to the
public and cut notes should not be re-issued. Notes unfit for re-issue should be sent to the
currency office in the first remittance made thither.

Subject to the conditions noted in the preceding paragraph, all notes, if fit for issue, may
be issued to the public.
In order to prevent the older issues of notes being stored for an indefinite period in the
Bank, the notes of older issues fit for re-issue should be promptly re-issued. Notes
received across the counter in the course of daily transaction may be re-issued at once,
provided that they arc in good condition.
Page | 24

Notes unfit for issue should be kept separately in the currency chest balance, pending
remittance to Currency office in accordance with S.R. 388.
3.3 Clearing House
Clearing is a process of collection and payment of instruments examples cheque, pay order,
drafts through intra-bank ! branch settlement under the leadership of Bangladesh Bank. By
clearing house, payable and receivable of different banks are settled easily. Clearing house is
perated under the supervision of Central Bank. In the absence of central Bank, Sonali bank acts
as an agent of it.
Operational Procedure:
Each member of Clearing House maintains an account in Bangladesh Bank or Sonali Bank.
Bangladesh bank settles the instruments as per instructions. Customers are of the present bank
cheques to his account drawn on other banks for collection. Before submitting, customers
endorse the instrument in the favor of his bank. Banks give entry of these instruments for
collection and use the crossing seal of the bank on the face of instruments. Each bank uses
“Clearing House Book” for using in the clearing house. Cheques arc given entry bank-wise in
this book. By introduction of BACH, banks send an image of instruments. And if paying bank
finds it ok, the proceeds will automatically be credited in collecting banks account by BEFTN.
Same Day Clearing: done for instruments of 5 lacs by BACH.
Transfer Delivery, for clearing within branches of the same bank in Dhaka city, a branch is given
responsibility which acts as a clearing house of the same bank. The settlement is done by IBCA
& IBDA. Local Office is acting as the clearing house of I BBL.
3.4 Currency Management
Currency management and Payment Systems is one of the core central banking functions. In
compliance with the Bangladesh Bank Order, 1972 the Department of Currency Management

and Payment System was organized to procure currency notes and coins and to arrange steady
and prompt suppl v of the same as per needs of the country.
Page | 25

3.4.1 Currency Management Division's Functions:
To procure currency notes and coins of different denominations.
To ensure steady and smooth supply of bank notes and coins
To oversee and review policies relating to Cash Department from time to time.
To issue guidelines in respect of disposal of soiled and non-issue notes.
To issue policy guidelines in respect of re-issue notes.
To issue policy guidelines in order to withdraw and payment of exchange value of torn,
defective and soiled notes.
To provide logistic support for smooth functioning ofCash Department.
To ensure standard policy measures in order to combat counterfeiting of currency notes
and to create awareness about forged notes.
To ensure safe arrangements for preserving and movement of government treasury .
3.4.2 Exchange Rate Policy:
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. 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. In the foreign market banks are free to buy and sale
foreign currency in the spot and also in the forward markets.
Page | 26

3.5 E-Services
3.5.1 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 arc mainly presented through time-series formatted reports. Reports
can be saved as excel format for further analysis.
Users: Banks, FIs, Economists, Researchers, Analysts
3.5.2 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
3.5.3 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 Scction-IXA of Foreign Exchange Regulation Act,
1947 to work as local agent of foreign principal(s).
Users: AD Branch of Banks
3.5.4Reporting goAML
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)Zfinancing of terrorism (TF) received from reporting organizations & other
sources and disseminating information/intcllicence thereon to relevant law enforcement agencies
Page | 27

for further action. The go AML 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
3.5.5 Web Upload
In terms of article 36(3) of Bangladesh Bank Order, 1972, all scheduled banks arc 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
3.5.6 Prize Bond Matching
Using this service one can search single or multiple numbers at a time.
3.5.7 Dispute Management System for Payment Card Transactions (NPSB-DMS)
For card-based electronic transactions routed through NPSB, disputes arc very common. For this
cardholder has to raise claim to card issuing bank and issuing bank investigates the claim and
cither proceeds or rejects. For a substantial case, a chargeback solicitation is to be started by the
issuing bank in the DMS gateway. Every single such case bend settled down at NPSB settlement
and in like manner subsidizes curve credited to the issuing bank lastly credited to the cardholder
account.
Solution supports full cycle dispute management procedure including chargeback, re-
presentment, second chargeback and arbitration.
Users: All Cards Issuing Banks
3.5.8 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),
Page | 28

Through its services, Banks and AD Branches issue & reports Foreign Exchange Transactions to
Bangladesh Bank.
Users: Banks, AD Branch of Banks and Customs
3.5.9 Ban laclesh Bank elender Svstem
Bangladesh Bank introduces the online tendon ng system to facilitate the procurement process of
Bangladesh Bank. The system will help you to participate in the local and international
tendcr/procurcment of Bangladesh Bank.
Users: Interested Bidders
3.5.10 eReturns
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
3.5.11 Special Foreign Currency Account Monitoring System (SFCAMS)
Online Special Foreign Currency Account Monitoring System is used for monitoring FC account
transactions of Bangladesh. Through its services, AD Branches of Banks report day to day
Transactions (Only Special FC A/C) to Bangladesh Bank.
Users: AD Branch of Banks
3.5.12 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 arc 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 Act, 2000.
Users: All scheduled banks

3.5.13 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
3.5.14 e-statement for CRR & SLR
In terms of article 36 of Bangladesh Bank Order, 1972 and Bank Company Ain, 199Lail
scheduled hanks (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
3.6 Performing Act in Favor of Government
Almost all central banks act as the government banker. It is no longer the case that a central bank
needs to conduct government banking business. Most central banks do but with widely ranging
degrees of intensity. The specific deposit account and associated services provided to the govt,
can vary w idely w ithout undermining the essential character of the monetary system.
National Banks wherever go about as investors, monetary specialists and guides to their
individual governments. As broker to the administration, the national bank keeps the stores of the
state governments and makes installments for the benefit of governments. Be that as it may, it
doesn't pay enthusiasm on Governments store. It purchases and sells remote monetary forms in
the interest of the administration. It keeps the load of gold of the administration. In this way, it is
the overseer of govt, cash and riches. As a financial specialist, the national bank makes transient
credits to the legislature for a period not surpassing 90 days. It buoys credits, pays enthusiasm on

them lastly reimburses them in the interest of the govt. Along these lines, it deals with the whole
open obligation. The national bank likewise prompts the govt, on such monetary and cash matters
as controlling swelling or emptying, debasement or revaluation of the money, shortage financing
parity of installments and so forth. But there is also a question should the govt, or the central
bank be left in control of interest rates?
Page | 30

The choice of location of the debt management function thus depends on the govt’s view as to
whether it is appropriate for the govt, to het on monetary policy success when markets are
skeptical and or the likely success of the alternative govt, arrangement in ensuring that conflicts
arc resolved consistent with that view. As pointed out by De Kock- “Central banks everywhere
operate as hankers to the state not only because it may he more convenient and economical to the
state hut also because of the intimate connection between public finance and monetary affairs.
Page | 31

Chapter-4
Development Activities
Page | 32

4.1 Institutional Development
Bangladesh Bank has achieved much regarding the institutional development through the Central
Bank Strengthening Project. Some of them arc:
Establishment of Enterprise Data Warehouse (under process) that will bring the entire
banking and FI industry under a single network through which data can be shared,
reported and supervised.
Implementation of Enterprise Resource Planning (ERP) has been a big step in automation
of operational structure of the Bangladesh Bank.
Bangladesh Bank has a strong online presence. Its website has the most informative and
resourceful website of the country regarding economic and financial information.
Bangladesh Bank has hosted a number of international seminars on different economic
and financial issues over the last several years.
Internal networking system with required online communication facilities have been
developed and in operation for the offices of Bangladesh Bank.
4.2 Regulatory Development
The banking and Fl industry has, in the last few years, experienced diversified regulatory
development. Some of the developments include:
Rules on Environment and Climate Change Risk Management for banks and FIs have
been coursed. Strategy rules on Green Banking have likewise been issued.
There is full usage of Basel-11 (International capital ampleness standard) accord has been
basically in both banking and Fl industry.
Number of approach activities for Financial Inclusion has been embraced.
Banks have been told to make separate auxiliary for capital market tasks and capital market
activities of banks circular segment currently minutely observed.
Rules on Stress Testing for banks and FIs have been issued which is meant to evaluate the
7

versatility of banks and FIs under various unfriendly circumstances..
Banks circular segment requested to develop separate Risk Management Unit for far reaching and
concentrated hazard management
Page | 33

Supervision has been intensified to increase the participation of banks jn Corporate Social
Responsibility (CSR).
For the effective and timely action of Bangladesh Bank, foreign exchange reserve of
Bangladesh did not face any adversity during global financial turmoil.
To meet international standard on Anti Money Laundering (AML)ZCombating Financing
of Terrorism (CFT) issues, guidelines for Money Changers, Insurance Companies and
Postal Remittance have already been circulated.
4.3 Automation and Technological Development
Because of the pro-active and forward-looking approach of the Bangladesh Bank, the banking
sector has experienced remarkable progress in respect of automation in functioning in the last
several years. Number of automation initiatives has been implanted in the banking sector, some
of w hich include:
Making a trained situation for obtaining the mechanized Credit Information Bureau
(CIB)administration gives credit related data to planned and existing borrowers. With this
improved and proficient framework, chance administration w sick be progressively compelling.
Banks and monetary establishments may outfit credit data to CIB database every minute of every
day around the year. You can access credit reports from CIB on the web.
L/C Monitoring framework has been presented for protection and utilizing all the important data
in regards to L/C by the banks from the Bangladesh Bank site. The framework enables the
approved clients of banks to transfer and download their L/C data.
Every booked bank circular segment subject to submit Weekly Statement of Position as at the end
of business on each Thursday to the Department of Off-site Supervision under the terms of articles
36(3) of Bangladesh Bank Order. This announcement would now be able to be submitted online
from the Bangladesh Bank site.
The e-returns administration has been presented. It is an Online Portal Service for Scheduled

Banks to submit Electronic Returns utilizing pre-characterized format with the end goal of Macro
Economy Analysis through related Bangladesh Bank offices.
Page | 34

The Online Export Monitoring System is utilized for observing fare in Bangladesh. Through this
administrations, hanks and AD parts of banks issue and report fare reports.
Bangladesh Automated Clearing House (BACH) started to work by supplanting the antiquated
manual clearing framework which permits the between bank checks and so forth to be settled in a
split second.
Electronic Fund Transfer (EFT) has been presented. It encourages the banks to make mass
installments in a split second absent much utilization of administrative work and labor. This is a
moment and productive approach to move reserves.
Initiation of Mobile Banking has led to much advancement in the banking sector. Through it,
franchises of banks through mobile operators can provide banking services to even the remotest
corners of the country.
More and more commercial banks arc now using their own core of banking solutions that has
contributed in making banking faster and more efficient. Usage of plastic money has led to an
increase in daily transactions. Full or partial online banking is now being practiced by almost
every bank.
Inauguration of Internet trading in Bangladesh is one of the most significant developments for
the capital market in the last years. Micro Finance Institutions submit their reports to the
regulator through the Online Report Submission Tools for MFIs.
Bangladesh Bank has been making revolutionary improvements in the economy of Bangladesh
over the years and will continue to do so.
Page | 35

Conclusion
Bangladesh Bank is the first
central bank in the world to introduce a dedicated hotline (16236) for the
general populace to complain any banking related problem. Moreover, the organization is the first
central bank in the world to issue a "Green Banking Policy". Not only is it an important body in
controlling the economy of our country, it is also a dream workplace for students who choose banking as
their career. On a whole, the role Bangladesh Bank plays as the central bank of Bangladesh is extremely
significant.
Bibliography
i.
ii.
https://www.bb.org.bd/
Text Book: Law and Practice of Banking, P.N. Varshcny- 18 Edition
a. https://www.bb.org.bd/econdata/exchangerate.php
b. https://www.dhakatribune.com/business/banks/2018/04/03/bangladesh-bank-
crr-banks-5-5
Page | 36

Business Report on Central Bank and it's functions : Bangladesh Bank

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Business Report on Central Bank and it's functions : Bangladesh Bank