time to time, is to be kept in the form of gold
coins, gold bullion, silver bullion, specialdrawing rights held with IMF or Approved foreign exchange. Since 1965, the Bank has been required to keep a
minimum amount of Rs.1.2 billion in the shape of gold coins,gold bullion, and
Silver bullion or approved foreign exchange as the backing for noteissue. The
remainder of the assets of Issue Department should consist of rupee coins,rupee
securities and the internal bills of exchange and other commercial papers as areeligible for purchase by the Bank under Section 17 (2a, 2b, & 2d) of the SBP Act, 1956.The notes issued by the Bank constitute by far the largest portion of the currency Incirculation in the country. The other components being one-rupee coins, two-rupeecoins, and subsidiary coins. The issue of one rupee and subsidiary coins is the prerogative of the Federal Government. The Bank merely looks after the managementof their issue
on behalf of the Government. The State Bank also issues"Commemorative
(Yadgari)" notes and coins of different denominations at occasions of national
Conduct of Monetary and Credit Policies
The State Bank of Pakistan is responsible to regulate the monetary and credit system of the country in such a manner that ensures monetary stability in the economy. Section9A of SBP Act, 1956 entrusts the Central Board of the Bank to formulate and monitor monetary and credit policy by taking into account the Federal Government's targets for growth and inflation, in accordance with the recommendation of the Monetary andFiscalPolicies Co-ordination Board (MFPCB). The State Bank has a number of instruments atits disposal to regulate the volume of credit and to ensure its flow to the priority sectors.
Instruments of State bank of Pakistan
The Bank has been equipped with both indirect (market oriented) and direct instrumentsof credit control. Indirect and market-oriented there are six types of instruments.Instruments are :-
SBP 3-day Repo Rate
SBP provides a lending facility to the scheduled banks for up to 3 days through ReverseRepo transactions. The interest rate charged on this facility serves as the main tool togiveInterest rate signals to the money market. Increase in this rate gives a signal of monetaryTightening.
SBP 3-day Repo rate influences the yield of T-bills sold through auctions The cut off yield is determined by the Auction Committee, keeping in view monetary targets,current economic and financial conditions and expected market response. The Sixmonth T-bill is considered the most important benchmark by the money market.
Open Market Operation
SBP is conducting regular Open Market Operations (OMOs) since January 1995. Uptill October 1997, OMOs were unidirectional, i.e. the SBP used to mop up liquidityfrom the market in case of excess but it refrained to inject funds in case of liquidity3