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Questions and Answers
What is one of the functions of the Nepal Rastra Bank according to the text?
What is one of the functions of the Nepal Rastra Bank according to the text?
According to Section 7(iv) of the Nepal Rastra Bank Act, what does the Bank manage?
According to Section 7(iv) of the Nepal Rastra Bank Act, what does the Bank manage?
Which act replaced the Central Monetary Authority of Nepal (CMAN) and established the Nepal Rastra Bank as the central bank of Nepal?
Which act replaced the Central Monetary Authority of Nepal (CMAN) and established the Nepal Rastra Bank as the central bank of Nepal?
Which power enables the Rastra Bank to influence foreign trade activities?
Which power enables the Rastra Bank to influence foreign trade activities?
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According to the Nepal Rastra Bank Act, one of the main functions of the Nepal Rastra Bank is to:
According to the Nepal Rastra Bank Act, one of the main functions of the Nepal Rastra Bank is to:
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In what year did the Nepal Rastra Bank Act 2058 come into force, replacing the previous legislation regarding the central bank?
In what year did the Nepal Rastra Bank Act 2058 come into force, replacing the previous legislation regarding the central bank?
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What role does the Nepal Rastra Bank play when it comes to fiscal policy implementation?
What role does the Nepal Rastra Bank play when it comes to fiscal policy implementation?
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In addition to managing foreign exchange reserves, what else does Section 7(ii) of the Nepal Rastra Bank Act state?
In addition to managing foreign exchange reserves, what else does Section 7(ii) of the Nepal Rastra Bank Act state?
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What is one of the key objectives of the Nepal Rastra Bank as outlined in its governing act?
What is one of the key objectives of the Nepal Rastra Bank as outlined in its governing act?
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What power does the Nepal Rastra Bank have over financial institutions according to the text?
What power does the Nepal Rastra Bank have over financial institutions according to the text?
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What does the Nepal Rastra Bank Act establish as the central bank of Nepal?
What does the Nepal Rastra Bank Act establish as the central bank of Nepal?
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Which provision of the Nepal Rastra Bank Act 2058 defines the primary function of the bank as being the custodian of currency notes and coins?
Which provision of the Nepal Rastra Bank Act 2058 defines the primary function of the bank as being the custodian of currency notes and coins?
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Study Notes
Introduction to Nepal Rastra Bank Act 2058
The Nepal Rastra Bank Act was promulgated with effect from July 9, 2002, under the name Central Monetary Authority of Nepal (CMAN) through the enactment of the CMAN Act during the interim period in Nepal. This act has been replaced by the current version called the Nepal Rastra Bank Act 2058 which came into force on April 16, 2002, replacing the previous one.
This legislation establishes the Nepal Rastra Bank as the central bank of Nepal and outlines its primary responsibilities, power, and authority within the country's economy. Its key objectives include maintaining price stability, ensuring adequate supply of money and credit, promoting sound economic growth, and regulating all banks, financial institutions, insurance companies, and other related entities.
In essence, this is the legal framework governing the operations of the nationwide banking system and its regulatory body—the Nepal Rastra Bank itself. It lays down the powers and duties of the Rastra Bank, defines the terms used in various provisions, sets up rules regarding licensing of commercial banks, and makes provision for the establishment of branches of foreign banks in Nepal among many others.
Functions of the Nepal Rastra Bank
As per Section 7(a)(i) of the Nepal Rastra Bank Act 2058, the main function of the Nepal Rastra Bank includes being the custodian of currency notes and coins issued by it or any other person authorised by law to issue such notes and coins. Furthermore, according to Section 7(ii), the Rastra Bank controls the issuance of currency and checks its circulation.
Under Section 7(iii), the Rastra Bank also acts as the banker of the government and maintains accounts of different ministries. Additionally, the Bank maintains cash balances of the Treasury and advances funds to meet the temporary shortfalls of revenue. Under Section 7(iv), the Rastra Bank manages foreign exchange reserves and foreign exchange market transactions.
Section 7(v) assigns the task of providing loans and advances to the federal and provincial governments to the Rastra Bank. Moreover, it provides loans and advances to persons engaged in industries, trade, commerce, agriculture, stock exchanges, cooperatives societies, and other similar activities.
Lastly, the Rastra Bank performs the role of supervisor, receiver, and liquidator of banks and financial institutions when required. In summary, the Nepal Rastra Bank plays a pivotal role in managing the country's financial systems, including currency management, government finance, foreign exchange reserve, and banking sector oversight.
Powers of the Nepal Rastra Bank
According to the Nepal Rastra Bank Act, the Bank holds several significant powers over the economic sectors of the country. These powers allow the Rastra Bank to control and influence the flow of money throughout the economy and regulate financial institutions. Some of these broad powers include:
- Licencing of Commercial Banks: The Bank can grant licenses to open new commercial banks.
- Regulation of Financial Institutions: The Bank regulates the functioning of financial institutions like securities board, capital market development committee, etc..
- Control over Money Supply and Credit Facilities: The Bank exercises control over the supply of money and credit facilities in the national economy.
- Supervision of Foreign Trade Activities: The Bank oversees all aspects of foreign trade activities.
- Management of Foreign Exchange Reserves & Transactions: The Bank controls the import and export of goods and services between Nepal and other countries, thereby influencing foreign trade activities.
- Fiscal Policy Implementation: With the approval of the government of Nepal, the Bank implements fiscal policy decisions.
These powers enable the Rastra Bank to take necessary actions to stabilize prices, manage inflation rates, prevent uncontrolled speculative business practices, monitor and enforce laws pertaining to the banking industry and ensure proper utilization of resources.
Monetary Policy in Nepal
Monetary policy refers to the process of controlling the total amount of money available in an economy, particularly by increasing or decreasing the interest rate charged by the central bank. According to monetary policy theory, if there is too much money chasing after too few goods, prices will rise. If there isn't enough money going around, prices could fall.
For Nepal, the principal objective of monetary policy is to maintain price stability while simultaneously ensuring maximum employment and real GDP levels, subject to the condition of non-inflationary finance. To achieve this goal, the central bank uses a combination of tools, including setting the discount rate, changing the statutory liquidity ratio, using foreign exchange reserves, manipulating the rediscounting facility, and implementing repurchase agreements.
Regulation of Financial Institutions
An integral part of the Nepal Rastra Bank is the function of regulating financial institutions or the 'regulator'. Based on the Nepal Rastra Bank Act, the Rastra Bank regulates all banks in Nepal, including regional rural banks, development banks, local level bank, and even those operating outside the borders of Nepal.
Moreover, the Rastra Bank also regulates investment banks, merchant banks, and finance companies as well as their associated bodies like the Securities Board and Capital Market Development Committee. Through these regulations, the Rastra Bank ensures the safety and security of depositors and maintains the standard operational procedures of all financial institutions operating in the country.
Governance Structure of the Nepal Rastra Bank
The Nepal Rastra Bank follows a structured organization in its governance. At the top lies the Governor of the Bank who is appointed by His Majesty the King. Below him sit deputy governors and directors general, both appointed by the Government.
The executive head of the Bank is the governor, who is responsible for conducting the day-to-day affairs of the institution. As the chief representative of the Bank, the governor represents the Bank in international organizations. He is assisted by two deputy governors and four senior officers, known as Deputy Directors-General of Finance, Administration, Statistics, Currency Notes, Legal Affairs, and Information Technology.
Each department is headed by a director-general, who reports directly to the governor. There are also three directors to each department appointed by the government upon recommendation from the Civil Service Commission. The staff of the Bank comprises administrative staff members, clerks, and messengers, with the administration section playing a
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Test your knowledge on the Nepal Rastra Bank Act 2058, which establishes the Nepal Rastra Bank as the central bank of Nepal. Learn about the functions, powers, monetary policy, regulation of financial institutions, and governance structure of the bank.
