Central Bank

StateState
Bank ofPakistan
Bank of Pakistan

• Hijrat ullah
By:
• Huma gul
Presentation theme:

Bank Central bank State Bank of Pakistan

• Definition
• Origin • Definition • Aim of the bank
• Definition • Purpose • Functions of the
• purpose • function bank
• Constitution
• perdulation

Conclusion
1. What is Bank?

Definition:
1. According Prof. Crowther;
• Institution
• Providing loans to lend
• And create the credit money
2. According to Prof. R. Kent;
 Accumulate the surplus
organizat
ion
 Advance to deficit
 The difference between surplus and
deficit called spread earning or profit
1. What is Bank?

 Origin of Bank:
o Italian word;
• Derived from “BANCUS”
• Means “BENCH”

o German word;
• Derived from “BANQUE”
• Means Firm
2. What is Central Bank?
 Definition;
o Institute which manage the following activities
• Nation’s currency
• Money supply
• Interest rate

o Oversee, their country commercial banking system

o Also called Reserve Bank Monitory Authority

2. What is Central Bank?

 Origin of Central Bank:

a. Nuremberg conference:

• In 1548, held in Nuremberg, Germany

• To cover the loop holes in banking system

• In 1578, First Central bank was established,

in Geneva, Switzerland
3. What is Central Bank?

 Origin of Central Bank Cont.…

b. Brussels conference:
• Before WW1 (1914-18),there was few central banks

• After “WW1” confusion in currency & exchange market

• Which become cause for some banking failure

• So, the conference held in held at Brussels in 1920

• That every state must have their own central bank

 Constitutions and
Functions of Central Bank
By-
Huma Gul
Student of MBA 6th HR,

Department of Management Sciences

Abdul Wali Khan University Mardan
3. Functions of Central Bank:

 Monopoly of note issue

 Bankers, Agent and Adviser to the Government

 Custodian of Cash Reserve of Commercial Bank

 Custodian of Nation’s Reserve of International

 Lender of The Last Resort

3. Functions of Central Bank:

Clearing House Function

Credit Control

Other Functions
 Collection of Data
 Central Banking in Developing Countries
State bank of Pakistan & Prudential regulations
By-
Hijrat ullah
Student of MBA 6th, HR

Department of management sciences

Abdul Wali Khan University Mardan
4. State Bank of Pakistan:
 History of SBP:
o Before independence, FRBI was the Central bank, Sub-continent
o After independence, FRBI divided,
o Ratio of 70:30 in between India and Pakistan
o And 30% reserve was equal to Rs. 750 million
o Muhammad Ali Jinnah inaugurated SBP,
o Commenced operation in July 1, 1948
o SBP work under State bank act 1956
o Before , Nationalization ordinance 1974
o SBP share capital was 51% Government contribution and
49 % by private investors
5. Functions of SBP:

Core functions

Non-traditional
Traditional functions
functions

Primary functions Secondary functions

 . of SBP
Primary functions
Primary functions of SBP
A. Issuing Currency Notes:

 Monopoly of Note Issue.

o Sole authority of notes issues, except coins

o Work under act of 1956

o Issue offices: located in Karachi, Peshawar & Lahore

o Brings uniformity in the system

o Better control over the money supply

o Increases public confidence

Primary Functions of SBP:
A. Issuing Currency Notes:
 Methods for issuing notes
1. Fixed fiduciary system 1956-1965
o New form of currency principle
o Central government, issue notes, fixed by Government
o This fixed amount, backed by government Securities
and bonds
o So, if government, issue more currency
o Then, should be backed by Metallic reserve
o Advantage: • Control over inflation
• No chance of currency over issue
Primary Functions of SBP:
A. Issuing Currency Notes:
 Methods for issuing notes
2. Proportional reserve system:

o Notes issues is backed by metallic reserve

o Rest of amount backed by Govt Bonds and securities

o 25%- 40% backed by gold

o 60%-75% backed by Govt securities and bonds

o In Pakistan; • 30% against Gold reserve

• 70% against Govt securities and bonds
Primary Functions of SBP:
A. Issuing Currency Notes:
 Methods for issuing notes
3. Minimum reserve system:
• Increase or decrease currency supply

• according to economy climate

• Notes issues shows

• Demand for money in the economy

• Price set by= by aggregate demand and

aggregate supply
Primary Functions of SBP:
B. Controller of Credit:
 To control the availability and cost of credit in the
country through
Quantitative control Qualitative control

• Open market • Varying margin

operations
• Variation in bank rate
• Credit rationing
• Varying reserve
requirements
Requirements
• Consumer’s credit
regulation
• Use of moral persuasion
• Direct action

 Purpose; full employment, price stability, increase in production etc.

Primary Functions of SBP:

C. Regulations and Supervision of banks:

Full power to supervise and control the banks

Banks Banks
liquidation restructuring

Banks Banks
performance valuation
Primary functions of SBP:
D. State bank as Clearing house:

Where representatives of different banks meet

To exchange cheques withdrawn

The state bank then settle the difference

Primary Functions of SBP:
E. Lender of last resort:
• Act as last lender of resort for commercial banks
• Used when banks have shortage of cash reserve
• Then, the state bank rescue them, from the danger
situation
• Method used is;
o Provide cash by discounting bill of exchange
o And treasury bills

• Safe guard the banks from the liquidation

Primary Functions of SBP:

F. Bankers and Agent to the government:

 As Financial Agent:
 Collects Taxes and other payments.
 Repaying external debts
As banker to the Government:
 Keep government deposits
 Short-term advances to the Govt
 Provides foreign exchange for purchasing foreign
goods, repaying goods etc.
 Repaying external debts
Secondary Functions of SBP:

Public Debt Management

Management of Foreign Exchange

Advisor to Government

Relations with IFI’S

Secondary Functions of SBP:
A. Public Debt Management:

o Also called Government debt or national debts

o This may be own by either Federal or provincial government

o The budget deficit actually shows, public debts for particular period

o Method for debts are:

 Issuing bonds
 Issuing securities
 By offering bills
 Low economy countries, get the loan from super-nation
Secondary Functions of SBP:
B. Management of Foreign exchange:
 State bank is custodian of foreign exchange

 Reserve and manage the exchange control

 Fixing value of currency

 Check currencies flight in and out

 Agent of government, Pakistan's representative

with IMF and world bank

Secondary Functions of SBP:
C. Advisor to the Government:
o maintains deposit accounts,
o effects domestic and foreign currency transactions
and provides advice relative to financial matters
o Government holds deposit accounts at central bank
o The account are using for:

 For receiving funds

 Making payment
 Clearing cheques issued by government
Secondary Functions of SBP:
D. Relationship with IFI’S:

Relationship with World bank

Relationship with IMF

ADB
Non-traditional Functions of SBP:

Development of Financial Institutions

commercial bank, Micro finance and Islamic banking

Training Facilities to Banker

Development of Specialized Financial Institutions

Credit to Priority Sector
Industrial, Agriculture, Exportation
Aim of SBP functions:

State bank and Economic Growth:

 Crucial role in the economic growth
 Facilitating and boosting the economy development
 Improving financial market( banks and financial inst.)
 Also contribution, capital market improvement(PIBs)
 Also help, commercial banks, through export scheme,
 by offering export at low rate
 Establishing special credit institution, for meeting
medium and large term financial needs
Prudential regulations:
Definition:
o Code of conduct or guide lines through which state bank
supervise the institutions
o Shows standard format for activities
o To decrease their risk-taking

Purpose:
 Provide safety to depositor’s funds
 Keep financial stability
 Uniformity in the sector
Perdulation of regulations:
Example:
REGULATION-XVI
WINDOW DRESSING
Banks shall refrain from adopting any measures or practices
where by they would either artificially or temporarily show an
apparently improved position of bank’s accounts as given in their
Balance Sheet and Profit & Loss Accounts specially in relation to
its deposits and profit. Particular care shall be taken in showing
inter-branch and inter-bank accounts accurately and strictly
according to their true nature.
Conclusion:

o Bank

o Central bank

o Functions of central bank

o State bank of Pakistan

o Functions of state bank of Pakistan

o Constitution of state bank of Pakistan

o Prudential regulations of state bank of Pakistan