State Bank of Pakistan

Central bank of Pakistan is the "State Bank of Pakistan". State bank of Pakistan (SBP) was established on 1st July 1948. Quaid-i-Azam Muhammad Ali Jinnah performed its opening ceremony. Currently State Bank of Pakistan is working under State Bank of Pakistan Act, 1956.

SBP Internal Working

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Board of Directors consist of:

  1. The Governor (Chairman)
  2. Secretary, Finance Division
  3. Government of Pakistan
  4. Eight directors, including at least one from each province appointed by the Federal Government.

Board is responsible to define and determine policies and oversee foreign exchange reserve management and approve strategic investment and risk policy.

The Board is required to submit a quarterly report to the Majlis-e-Shoora (Parliament) on the state of the economy with special reference to economic growth, money supply, credit, balance of payment and price development.

Monetary and Fiscal Policies Co-ordination Board

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Co-ordination Board

  1. Federal Minister for Finance (Chairman)
  2. Federal Minister for Commerce or Secretary, Ministry of Commerce (Member)
  3. Deputy Chairman, Planning Commission (Member)
  4. The Governor (Member)
  5. Secretary, Finance Division Government of Pakistan (Member)
  6. Two eminent macro or monetary economists with proven record of research and teaching to be appointed by the Federal Government.

Functions of Co-ordination Board

  • coordinate fiscal, monetary and exchange-rate policies;
  • ensure consistency among macro-economic targets of growth, inflation and fiscal, monetary and external accounts;
  • meet for the purposes of clauses (a) and(b) before the finalization of the budget to determine the extent of Government borrowing from commercial banks.
  • meet on a quarterly basis to review the consistency of macro-economic policies and to revise limits and targets set at the time of the formulation of the budget.
  • consider limits of the Government borrowing as revised from time to time in the meetings to be held before and after passage of the annual budget;
  • review the level of Government borrowing in relation to the predetermined or revised targets after every quarter; and
  • review the expenditure incurred in connection with raising of loans and Government borrowing

Monetary Policy Committee

Monetary Policy Committee

  1. Governor (Chairperson)
  2. three senior executives of the Bank (Members)
  3. three members of the Board (Members)
  4. three external members (Members)

Functions of Monetary Policy Committee

  • formulate, support and recommend the monetary policy, including, as appropriate, decisions relating to intermediate monetary objectives, key interest rates and the supply of reserves in Pakistan and may make regulations for their implementation;
  • approve and issue the monetary policy statement and other monetary policy measures;
  • perform any other functions conferred on it by law.
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SBP Vital Role in Economic Development

Issue of Notes

State bank of Pakistan has monopoly in issuing currency notes. 5, 10, 50, 100 rupee notes are issued by the bank on 12 July 1976.  Note of 500 rupee was issued on 1st April 1986 and 1000 rupee note was issued on 18th July 1987. At present note of Rs.5000 is also issued by the state bank of Pakistan. The state bank has three offices of issue, situated at Karachi, Lahore and Peshawar.

Banker's Bank

State bank of Pakistan is the bank of all commercial banks working in Pakistan.

  • State bank provides loans to commercial banks at the time of need
  • Commercial banks re-discount their bills of exchange from state bank
  • State bank can sell, purchase and hold debentures of any banking company or of any other financing corporation
Advisor to GovernmentTicketing

State bank of Pakistan works as an advisor to federal and provincial government.

  • It guides the government in financial and economic matters
  • State bank assists the government in various credit schemes
  • It informs the government about the monetary and fiscal situations of economy
  • State bank helps the government in making investments
Controller of Credit

A national credit consultative council (NCCC) was setup in 1972 for the purpose of monitoring and controlling credit NCCC was rename to Private Sector Credit Advisory Council (PSCAC) in 2007. Credit and investment are the most important economic and fiscal variable. State bank helps to arrange the credit and investment facilities. State bank has adopted following tools to control credit:

  • Open market operation
  • Bank rate policy
  • Changes in reserves ratio
  • Changes in margin requirements
  • Change in liquidity ratio
  • Moral persuasion and publicity
Growth of Money Market

Money market is not at its best level in Pakistan. Due to illiteracy banking situations are not favorable. State banks give much importance in the growth and development of money market. Economic development is impossible without the growth of money market.

Special Funds for Development

The major aim of state bank is not to earn profit. But its effective working gives him huge amount of profit. These profits are allocated towards establishment of various funds for economic progress and prosperity. It established Rural Credit Fund in 1961 and Export Credit Fund in 1972.

Foreign Exchange Reserves

State bank of Pakistan is also the custodian of gold, silver and foreign exchange reserves. It regulates foreign exchange reserve in accordance with foreign exchange Act 1947. In December 2018, foreign exchange reserves for Pakistan was 11,319.8 million US dollars. Foreign exchange reserves of Pakistan increased from 7,004.3 million US dollars in January 2014 to 11,319.8 million US dollars in December 2018 growing at an average annual rate of 1.02 %.

Banker to the Government

It is the bank of federal as well as provincial government. Its functions for the Govt. are to issued new notes, accepts the government cheques and drafts, responsible for transferring government funds at international level. SBP also arranges the public debts of federal and provincial government, holds federal and provincial government securities and is liable for the payment of salaries and pension to government employees.

Clearing House

State bank of Pakistan acts as the clearing-house for the commercial banks

  • It shows the financial position of various banks
  • Clearing-house helps commercial banks to settle inter-bank transactions
  • It reduces the excessive use of cash
  • It controls the harmful competition among banks
Lender of Last Resort

The state bake of Pakistan also acts as the lender of the last resort for the commercial banks. When commercial banks are in crisis and have shortage of cash, then state bank comes to their help. State bank may help the commercial banks by rediscounting their bills of exchange and by advancing loans against securities.

Economic Growth

State bank of Pakistan played a very significant role in the growth of the banking infrastructure. It gives special importance towards the development of capital market in the country. It also provides assistance to the government in development planning and poverty reduction programs. All this results in economic growth and development.

Value of Rupee

State bank of Pakistan is responsible for the maintenance of the external value of rupee. State bank is the controller of exchange rate in the country. Till September 1971, Pakistani rupee remained linked to UK Pound and it was de-linked from pound and linked to US Dollar. In 1982 it was from delinked from US Dollar. Now the value of our currency is determined according the demand and supply of foreign exchange market. If the domestic economic condition is stable balance of payment is favorable then value of currency increases, otherwise it falls. The exchange rate is fixed daily by the State Bank of Pakistan.

Debts Management

Our scarce resources and government polices are not able to run the mega projects which needed heavy amount of resources. Due to shortage of resources government has to depend upon other rich nations. All these arrangements are the responsibility of the state bank on the behalf of government.

Exchange Centre

State bank issued licenses to different commercial banks to hold foreign exchange. Such license holders can also deal in foreign exchange at authorized rates. These exchange centers are very helpful in mobilizing the resources.

International Relations

State bank of Pakistan maintains relations with different international financial institutions such as IMF, WBG, etc. It negotiates different contracts with these institutions on the behalf of government.