The State Bank of Pakistan (SBP; Urdu: بینک دولت پاکستان) is the central bank of Pakistan.
While its constitution, as originally laid down in the State Bank of
Pakistan Order 1948, remained basically unchanged until January 1, 1974,
when the bank was nationalized, the scope of its functions was
considerably enlarged. The State Bank of Pakistan Act 1956,[1]
with subsequent amendments, forms the basis of its operations today.
The headquarters are located in the financial capital of Pakistan, Karachi with its second headquarters in the capital, Islamabad. History
Before independence on 14 August 1947, during British colonial regime the Reserve Bank of India
was the central bank for both India and Pakistan. On 30 December 1948
the British Government's commission distributed the Reserve Bank of
India's reserves between Pakistan and India -30 percent (750 M gold) for Pakistan and 70 percent for India.[2]
Under the State Bank of Pakistan Order 1948, the state bank of Pakistan was charged with the duty to "regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in Pakistan and generally to operate the currency and credit system of the country to its advantage". A large section of the state bank's duties were widened when the State Bank of Pakistan Act 1956
was introduced. It required the state bank to "regulate the monetary
and credit system of Pakistan and to foster its growth in the best
national interest with a view to securing monetary stability and fuller
utilisation of the country’s productive resources". In February 1994,
the State Bank was given full autonomy, during the financial sector reforms.[3]
On January 21, 1997, this autonomy was further strengthened when the
government issued three Amendment Ordinances (which were approved by the
Parliament
in May 1997). Those included were the State Bank of Pakistan Act, 1956,
Banking Companies Ordinance, 1962 and Banks Nationalization Act, 1974.
These changes gave full and exclusive authority to the State Bank to
regulate the banking sector, to conduct an independent monetary policy
and to set limit on government borrowings from the State Bank of
Pakistan. The amendments to the Banks Nationalization Act brought the
end of the Pakistan Banking Council (an institution established to look
after the affairs of NCBs) and allowed the jobs
of the council to be appointed to the Chief Executives, Boards of the
Nationalized Commercial Banks (NCBs) and Development Finance
Institutions (DFIs). The State Bank having a role in their appointment
and removal. The amendments also increased the autonomy and
accountability of the chief executives, the Boards of Directors of banks
and DFIs.
The State Bank of Pakistan also performs both the traditional and developmental functions to achieve macroeconomic
goals. The traditional functions, may be classified into two groups: 1)
The primary functions including issue of notes, regulation and
supervision of the financial system, bankers’ bank, lender of the last
resort, banker to Government, and conduct of monetary policy. 2) The
secondary functions including the agency functions like management of
public debt, management of foreign exchange, etc., and other functions
like advising the government on policy matters and maintaining close
relationships with international financial institutions.
The non-traditional or promotional functions, performed by the State Bank
include development of financial framework, institutionalization of
savings and investment, provision of training facilities to bankers, and
provision of credit to priority sectors. The State Bank also has been
playing an active part in the process of islamization of the banking
system. The Bank is active in promoting financial inclusion policy and is a leading member of the Alliance for Financial Inclusion.
It is also one of the original 17 regulatory institutions to make
specific national commitments to financial inclusion under the Maya Declaration[4] during the 2011 Global Policy Forum held in Mexico.
Regulation of liquidity
The State Bank of Pakistan has also been entrusted with the
responsibility to carry out monetary and credit policy in accordance
with Government targets for growth and inflation with the recommendations of the Monetary and Fiscal Policies Co-ordination Board without trying to effect the macroeconomic policy objectives. The state bank also regulates the volume and the direction of flow of
credit to different uses and sectors, the state bank makes use of both
direct and indirect instruments of monetary management. During the
1980s, Pakistan
embarked upon a program of financial sector reforms, which lead to a
number of fundamental changes. Due to these changed the conduct of
monetary management which brought about changes to the administrative
controls and quantitative restrictions to market based monetary
management. A reserve money management programme has been developed, for
intermediate target of M2, that would be achieved by observing the
desired path of reserve money - the operating target.
State Bank of Pakistan has changed the format and designs of many
bank notes which are currently in circulation in Pakistan. These steps
were taken to overcome the problems of fraudulent activities.
Banking
The State Bank of Pakistan looks into many ranges of banking to deal
with changes in the economic climate and different purchasing and buying
powers. Here are some of the banking areas that the bank looks into:
- State Bank’s Shariah Board approves essentials and model agreements for Islamic modes of financing
- Procedure for submitting claims with SBP in respect of unclaimed deposits surrendered by banks/DFIs
- Banking sector supervision in Pakistan
- Microfinance
- Small and medium enterprises (SMEs)
- Minimum capital requirements for Banks
- Remittance facilities in Pakistan
- Opening of foreign currency accounts with banks in Pakistan under new scheme
- Handbook of corporate governance
- Guidelines on risk management
- Guidelines on commercial paper
- Guidelines on securitization
- SBP Scheme for agricultural financing
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