& çâÌæÚUæð´ ·¤è ¥ôÚU Îð¹Ùæ ÁæÚUè ÚU¹ð´ ¥ÍæüÌ ¥ÂÙð ÜÿØ ÂÚU ŠØæÙ ÚU¹ð´Ð ãæÚU Ù ×æÙð´, €UØô´ç·¤ ·¤æ× ·¤ÚUÙð âð ¥æÂ·¤ô ©gðàØ ·¤è Âýæç# ãôÌè ãñ ¥õÚU ÁèßÙ ·¤æ ¹æÜèÂÙ ÎêÚU ãôÌæ ãñÐ ÖÜð ãè ÁèßÙ ×ð´ ç·¤ÌÙè Öè ·¤çÆÙæ§ü €UØô´ Ù ¥æ°, çÁ™ææâæ ¥õÚU ©ˆâæã ÕÙæ° ÚU¹ð´Ð ŠØæÙ ÚU¹ð´, ÜÿØ ã×ðàææ ¥æÂ·Ô¤ Âæâ ãôÌð ãñ´ çÁ‹ãð´ ÂæÙð ·Ô¤ çÜ° ÂýØæâ ¥æÂ ·¤Öè Öè àæéM¤ ·¤ÚU â·¤Ìð ãñ´Ð

Monetary Policy: Institutional Aspects

by A M A Rahim
THE subject ol monetary policy can be analysed In a number of ways II can be treated on a highly theoretical level as la usually done by monetary economists or one can have an Institutional approach to Ihe whole problem ‘In recent years there has been a great revival of interest In monetary policy and monetary instruments In thia paper an effort has been made tp look at monetary policy from an Institutional point of view The approach is to describe (11 Institutions concerned In ihe application of monetary policy. (2) the aims of policy and 13) the instruments of policy
The broad strategy ol eco notnic and monetary policy is decided by the Ministry ,of Finance. The authority of the Ministry may finally Ite with the President in a presidential form of government and the Finance Minister In a parlia mentary system of government. However, the formula tion of the broad strategy ts generally carried out by the Ministry under the chairman ship of the Finance Minister The’ Bangladesh Bank is re sponsible for coordination and implementation of the Government a policy. The Bank clearly makes Its influence felt on a wide range of policy deci sions and is represented on many committees through which economic policy is formulated and co-ordinated. The Bank, therefore, has a special role to play at the formulation stage In advising the govern ment on monetary and fiscal affairs.
It has sometimes been common to talk about autonomy or independence of cen tral banks. The use of the word Independence may. of course, be misleading to some people about the position of a central bank. The authority of the state over the central bank Is invariably absolute. What Is open to question Is the extent to which
the government should tie-tail Its command to the central bank The extent ol govern ment i*egulatlon of the central bank however varies Ironi country to country depending upon the precise role that the central bank Is assigned by statute or by tradition Generally. Ihe central bank is created as corporate body whose powers are regulated by its charter, just as an ordinary bank's powers are regulated by tts articles of Association
Usually the powers under the Charters are quite wide and In a country like England the operative restrictions on the activities of the Bank of England were imposed mainly by conventkais In Bangladesh the Central bank (Bangladesh Baokl like all other corpbra tlons and Minks, has tieen created by Charter by order of the executive There has been no constitutional authority ol sanction like the Public Service Commission or the Office of the Auditor General In that sense the Batik is no more independent than the Trading Corporation In this context, the Bank's role can be analysed on the following cate gories (al The Bank’s relation ship with the Government: (b) its relationship with the bank Ing and financial community: and (c) its relationship with the general public.
BB's Relationship with Govt
By Charter the Bangladesh Bank is the Government’s Bank The Government's consolidated account is main tained by the Bank free of Interest. There are four accounts whjch the Government maintains with the Bank. Account No I is the General Consolidated Fund of the Government
where the revenues and expenditures are recorded Account No 2 is the Food Account which relates to the accounts of the Food Ministry The third account la the Railway Account when in receipts and expenditures of rhe Bangladesh Railway are maintained separately The fourth one records deposits of foreign cash grants, cash loans and sale proceeds of comrnodi ties received from abroad as loans aid and grants The gov ernment like the customer ol a commercial bank has "ways and means advance limit de terrnlned by mutual consulta non Whenever this limit is ex reeded. the excess withdrawal is i overed by ad hoc securities. This aspect ot the Banks relationship with the Ministry is more or less of a routine na tore and is not very colourful
Bangladesh Bank s relation ship with the government has two distinct phases - advisory and operational In a mixed economy where economic decisions are made by the house holds and productive and dis tributlve activities adjust lb those decisions the division ol responsibility between the central bank and the Ministry may partake the pattern of di vision of public and private sectors In such a milieu the central bank and the Ministry should not have the same kind ot orientation. Ministry officials who will have their ear to the political ground will be predominantly concerned to serve, advise and protest their Minister. A central bank although conscious of the development In the political field, should not concern Itself with them very much It should concern itself with the general economic facts of life and should be able to approach
the problem in full knowledge and understanding of market trends and movements As a result evert if the government dec ision is motivated by pollti < al considerations, the central bank's advice based on objer five analysis of economic reali ties mat impart a good rnea sure of moderation therein
In terms ol clause fl) of Article -) of the Bangladesh Bank Order 72. the govern merit has the power to give di rec lions to the Bank to cover any matter of policy This pro vision locates < learly where the ultimate responsibility lies. It seems to me that there are clear circumstances where views may be divergent be tween the government and the Bank and such disagreements arc aired in the best Interest of the country In such a situation. the central bank s post lion is vindicated as soon as the direction Is given by the government to the bank, and it is made clear that the decision is that of the government Clearly one cannot visualize such situations often. One needs to underscore that the powers of direction by the government are exercised with care and caution
fhe governor of Bangladesh Bank does not have any constitutional position. 1 personally feel that the governor of Central Bank should have a constitutional position like the Chief Election Commissioner or th> Judges of the High Court or the chairman of Public Service Commission. Once appointed he cannot be removed except on grounds provided in the constitution. This Is particularly necessary in view of the bad tradition we have so far. The' first governor of Bangladesh Bank was removed by the government, the second
one was indirectly forced to resign and the third and fourth toed the line of the Ministry avoiding all conflicts. If the governor enjoys a constitutional position it will embolden him tn speak out the lapses in the economic management of the country The report of the Bangladesh Bank should also be submitted to the parliament as is done by other constitu tional bodies This issues has assumed particular importance in view of our option for the market economy where the decisions are made by the households and planning is confined to the Public Sector expenditures only
Relatiorwhip with FCs
The relationship between the central bank and other fl nancial Institutions are more or less straight forward In Bangladesh This aspect of the central bank s relationship can lie briefly summed up as — (a) Quantitative and qualitative control of credit through fixing of ceiling and laying down of guidelines, (b) Follow up inspections to ensure that the operation are consistent with the guidelines, (c) The prerogative to call for any Information from banks for proper formula -Hon of monetary policy.
The effect of the above en abllng powers. Is to give the central bank a predominant position to facilitate the due discharge of Its obligations
Relationship with Public
Traditionally, the centra) banks possess a passion for anonymity. To the public the central bank Is a mystery that surrounds the so-called high finance. It has not been the practice for the central bank to explain or discuss economic Issues openly with the aim of
informing or educating public opinion In the pas' i wo derades however 'here has been » discernible whiff reflecting central bank s effort to forecast and project ihe course »f the economy ahead of tune This of course has been facilitated bv the development of analytical techniques in projection and forecasting At 'he present tune almost all central banks bring out bulletins periodicals and other publications which often educate the public mind Clearly no standard can be laid down in this matter TTiere course will be variation m this role of the central bank from country to country depending upon the formal re sponsibfliues allocated to the central bank and the govern ment by statute or tradition
The Annual Report of a een tral bank Is an useful Instru ment through which it can air a good deal of its ideas to the public The Annual Report not only records the economic events of the period under re view but also analyses focuses and pinpoints the factors which are responsible for the performance of .the economy in a particular way This func Hon of the central bank like its relationship with the govern ment. in the final analysis de pends on the availability of ex pertise and technical compe tence at the command of the central bank If the Ministry of Finance is better organised in analysing issues tra< king out a course for (tie economy and establishing causal relationship among the various macro vari ables the central bank will certainly fade Into unimpor tance In this role It is. there fore, important how well edu rated and able are the opera tional and technical staff'of the central bank
The writer is a former Secretary to the Government Ministry of Planning and a Senior Fellow of Bangladesh Centre lor Adea/iced Studies