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Role of

Central Bank
in
Bangladesh

Presented To
Dr. Md. Azam Khan
Professor
Faculty of Business
Bangladesh University of Professionals

Presented By
Name: Hosneara Swarnaly
Id no:1407017

Name: Munni Chakma


Id no:1407035

Name: Afroza Parvin Chowdhury


Id no:1407031

Name: Tasnim Ali Shamma


Id no:1407069

Name: Namrata Khisa


Id no:1404050

Name: Ishrat JahanTanjila


Id no:1404017

Definition of Bank:
The term Bank seems to
originated and/or derived from
different sources like the
Germanic word banck, the
French word banque and the
Italian word banco.
The Germanic word banck which
means a joint stock fund or heap.
The Italian word banco refers to
a bench at which the money
changers used to change one
kind of money into another and
transact their banking business.
Thus, in olden days, banking was
associated with the business of
money changing/lending.

Banking process diagram:

Objectives of Bank

1. Maximizing profits
2. Saving and Lending money .
3. Creating propensity of savings amongst the people.
4. Create money against money as an alternative for enhancing supply of money.
6. Build up capital through savings.
7. Expedite investments.
8. Controlling money market.
10. Extend co-operation and advices to the Govt. on economic issues.
11. Assist the Govt. for trade& business and socio-economic development.
12. Issue and control notes and currency as a central bank.
13. Maintainand control exchange rates as a central bank.

Types of Banks: Different types


of Banks & their functions

Central bank of Bangladesh :


Bangladesh Bank
A central bank is a bank whose essential duty is to
maintain stability of the monetary standard.
Bangladesh Bank is the Central bank of Bangladesh and
is a member of the Asian Clearing Union.
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.
Bangladesh Bank is the first central bank in the world to
issue a "Green Banking Policy".
Dr. Atiur Rahman was given the title Green Governor
at the 2012 United Nations Climate Change Conference ,
held at the Qatar National Convention Centre in Doha

History of
Bangladesh Bank
Bangladesh Bank came into existence on 16
December 1971.
order 1972 (Presidential Order No. 127 of 1972) .
In 1982, the first reform program was initiated,
wherein the government denationalized two of the
six nationalized commercial banks and permitted
private local banks to compete in the banking
sector.
In 1986, a National Commission on Money,
Banking and Credit was appointed to deal with the
problems of the banking sector.
The Financial Sector Adjustment Credit (FSAC) and
Financial Sector Reform Programme (FSRP) were

Monetary policy
A set of rules that aims at regulating the supply of
money in accordance with predetermined goals or
objectives. Monetary policy plays a very dominant role
in altering the economic activity and the price level in
a country. So, it should be very carefully formulated
and implemented in achieving the goals and objectives
as outlined in the Bangladesh Bank Order, 1972 below:
(1) Price stability both internal and external;
(2) Sustainable growth and development;
(3) High employment;
(4) Economic and efficient use of resources;
(5) Stability of financial and payment system.

Core functions
(i) Open market operation (treasury bills/bonds, repo,
reverse repo auctions),
(ii) Reserve ratios- cash reserve requirements (CRR) and
statutory liquidity ratio (SLR),
(iii) Secondary trading,
(iv) Discounting rate/ bank rate, and
(v) Acts as a banker to the government.
(vi) Acts as an advisor to the government.
(vii) As the central bank of Bangladesh reserves sole
responsibility to issue bank note.
(viii) Directs the growth expediting programs for the
national interest.

Economic growth
Bangladesh banks one of the key objective is to
promote and maintain a high level of production,
employment and real income of Bangladesh; and
to foster growth and development of the country's
productive resources for national interests.
Therefore, Bangladesh bank as the regulator of
country's financial system performs its
responsibilities with the view to achieve its
objectives that impacts directly and indirectly on
country's financial growth, in particular, monetary,
fiscal, and economic growth.

The Role of Central Bank in a Developing


Economy in a country (Bangladesh)
1. Role of Central Bank in Economic Development
The central bank in a developing country aims at the promotion and
maintenance of a rising level of production, employment and real
income in the country.
2. Creation and Expansion of Financial Institutions
One of the aims of a central bank in an underdeveloped and developing
country is to improve its currency and credit system.
3.Proper Adjustment between Demand for and Supply of Money
The central bank plays an important role in bringing about a proper
adjustment between demand for and supply of money. An imbalance
between the two is reflected in the price level. A shortage of money
supply will inhibit growth while an excess of it will lead to inflation. As
the economy develops, the demand for money is likely to go up due to
gradual monetization of the non-monetized sector and the increase in
agricultural and industrial production and prices.

4. A Suitable Interest Rate Policy


In an underdeveloped country the interest rate structure stands at a very high
level. There are also vast disparities between long-term and short-term interest
rates and between interest rates in different sectors of the economy.
5. Debt Management
Debt management is one of the important functions of the central bank in an
underdeveloped and developing country. It aims at proper timing and issuing of
government bonds, stabilizing their prices and minimizing the cost of servicing
public debt.
6. Credit Control
Central Bank should also aim at controlling credit in order to influence the
patterns of investment and production in a developing economy. Its main
objective is to control inflationary pressures arising in the process of
development. This requires the use of both quantitative and qualitative methods
of credit control.
7. Solving the Balance of Payments Problem
The central bank should also aim at preventing and solving the balance of
payments problem in a developing economy. Such economies face serious
balance of payments difficulties to fulfil the targets of development plans. An
imbalance is created between imports and exports which continue to widen with
development.

Functions of Central Bank

The arguments in its favor are as follows:


(a) To maintain equilibrium in quality between notes and currency
issue
(b) To maintain equilibrium in size, types and values of notes and
currency
(c) To maintain stability in rates of exchange both inland and foreign
(d) To create confidence on the people
(e) To control money market.

Commercial Bank and Central Bank: Their


functions and mutual relationships
In common parlance, Bank means Commercial Bank and its
functions. Central Bank is a separate entity and plays
distinctive roles. The function of a Bank is to collect deposits
from the public and lend those deposits for the development
of Agriculture, Industry, Trade and Commerce.
Bank pays interest at lower rates to the depositors and
receives interests on loans and advances from them at higher
rates. In modern banking, Bank carries out many other
activities, e.g. creation of debts and money, transmission of
money from one country to another country, increase of
foreign trade, preservation of valuables in safe custody etc.
Thus, Bank earns profits through executing various types of
activities.

Distinguish between Central


Bank and Commercial Bank:

Conclusion
Thus the central bank plays an important role in achieving economic
growth of a developing country like Bangladesh through the various
measures discussed above. It should promote economic growth with
stability, help in attaining full employment of resources, in
overcoming balance of payments disequilibrium, and in stabilizing
exchange rates.
Over the past decade, many central banks in developing and
emerging economies have begun to place renewed emphasis on the
promotion of economic development. A central bank with a wider,
developmental mandate can make important contributions to a
countrys economic and social development and may play an
important role in improving the framework conditions for financing
the post-2015 development.
Bangladesh bank is following a vigilantly accommodative monetary
policy to sustain strong public , especially private sector credit
demand and its mechanism of control.