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Under the state Bank of Pakistan Order 1948, the bank was charged with the duty to

1. Regulate the issue of Bank notes


2. Keeping reserves to securing monetary stability in Pakistan
3. To operate the currency and credit system of the country to its advantage

According to the State Bank of Pakistan Act 1956 the scope of the Bank operations was
considerably widened, which require the Bank to

1. To regulate the monetary system of Pakistan


2. To regulate the credit system of Pakistan
3. To foster its growth in the best national interest with a view to securing monetary
stability
4. Fuller utilization of the country productive resources.

Under financial sector reforms,

In February 1994, the state bank of Pakistan was granted autonomy. In 1997 this autonomy
further strengthened by issuing three Amendment Ordinance (approved by Parliament in May
1997) namely,

State Bank of Pakistan Act, 1956

Banking Companies Ordinance 1962

Bank Nationalization Act, 1974

Due to this change in the State Bank Act, it gave the bank the full and exclusive (Limited)
authority

1. To regulate the banking sector


2. To conduct an independent monetary policy
3. To set limit on govt. borrowing from the state Bank of Pakistan

State Bank of Pakistan perform both the

1. Traditional and
2. developmental functions to achieve macro-economic goals

Traditional functions, which performed by the central bank almost all over the world, may be
classified into two groups:

A. The primary function include


I. Issue of notes
II. Regulation and supervision of financial system
III. Banker's bank
IV. Lender of the last resort (option)
V. Bankers to Govt.
VI. Conduct of monetary policy

The secondary function include the agency function

I. The management of public debt


II. Management of foreign exchange etc.

Other function of SBP like

I. Advising the govt. on policy matters


II. Maintaining close relationship with international financial institutions

The Nontraditional or Promotional functions that are performed by the SBP include

I. Development of financial framework


II. Institutionalization of saving and investment
III. Provision of training facility to bankers and
IV. Provision of credit to priority sectors

The SBP also has been playing an active part in the process of islamization of the banking
system.

Regulation of Liquidity

As a central bank of Pakistan, SBP has been entrusted with the responsibility to

I. Formulate and conduct monetary policy


II. Conduct of credit policy in a manner consistent (dependable) with the Govt. targets for
growth and inflation
III. Recommendations of the Monetary and Fiscal Policies Co-ordination Board with respect
to macro-economic policy objectives.

The basic objective underlying (essential) its functions two fold

I. The maintenance of monetary stability ( leading towards the stability in the domestic
price)
II. Promotion of economic growth

To regulate the quantity and direction of flow of credit to different uses and sectors, the State
Bank of Pakistan makes use of both direct and indirect instrument (tools) of monetary
management.
Exchange Rate Management and Balance of payment

1. Maintenance of external value of the currency is a major responsibility of SBP. For this
purpose the SBP required to regulate the foreign exchange reserves of Pakistan in line
with the Condition (stipulation) of the Foreign Exchange Act 1947.
2. As an agent to the Govt, SBP have authority to purchase and sale gold, silver or approved
foreign exchange and transaction of Special Rights with IMF under sub-sections of State
bank of Pakistan Act, 1956.
3. The Bank is responsible ;
 To keep the exchange rate of the rupee at an appropriate level
 To prevent it from wide fluctuations in order maintain competitiveness of our exports
 Maintain the stability in the foreign exchange market

To achieve the objective

Various policies have been adopted from time to time in view the prevailing (existing)
circumstances (condition).

 Pakistan rupee remained linked to pound sterling till September 1971 and subsequent (later)
to U.S. Dollar
 In 1982 January 8, the value of the rupee was determined on daily basis which reference to a
basket of currencies of Pakistan major trading partners and competitors.

After nuclear detonation (explosion) by Pakistan in 1998,

 A two tier exchange rate system was introduced to reduce the pressure on official reserves
 To prevent the economy to some extent from adverse implications of the sanction (limits)
imposed on Pakistan.
 However the exchange rate has been unified (merge) with the introduction of market based
daily exchange rate system, under which the exchange rate is determined by the demand and
supply position in the foreign exchange market.

As the custodian of the country foreign reserves;

 SBP is also responsible for the management of the foreign exchange reserves and this
task is performed by an Investment Committee.
This committee after taking into consideration the overall level of reserves,
Maturities
Payment obligations
Take decisions to make investment of surplus funds in such a manner that ensure the
liquidity of funds and maximize the earning. These reserves are also being used for
intervention in the foreign exchange market.
DEFINITION of 'Unencumbered'
An asset or property that is free and clear of any encumbrances such as creditor claims or liens. An
unencumbered asset is much easier to sell or transfer than one with an encumbrance. Examples of
typical unencumbered assets are a house without any mortgage or other lien on it, a car where the
automobile loan has been paid off or stocks purchased in a cash account, rather than a margin
account.

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