Role of Bangladesh Bank for Economic development

9 Apr, 2013 Assignment, banking, Terms The modern central bank is an institution responsible not only for the maintenance of economic stability; it also performs a variety of developmental and promotional functions of a countries economy. The main objective of a Bangladesh bank s monetary policy is to achieve growth with stability within the framework of the general economic policy of the State. For the sake of economic development, the bank provides sufficient quantity of money appropriate to growth process. A growing volume of production and investment cannot be maintained without an increasing supply of money and credit. The money supply grows at least at a rate roughly equal to that of increase in real income. It is essential to mobilize domestic savings for productive uses and the flow of funds has to be guided, qualitatively as well as quantitatively, to proper lines of investment. Thus, one of the major roles of Bangladesh bank is to support the gradual expansion and proliferation of commercial banks, saving banks, cooperative banks; investment banking, government bond market, bill market, etc., for the purpose of meeting the requirements of economic development of the country. Bangladesh bank has also the responsibility to publish statistical reports on trends in the money and capital markets. In a developing economy like Bangladesh, particularly, Bangladesh bank has important roles to play in the process of development. The under-developed economies have under developed money markets where banking system is not properly organized. There are institutional gaps in the money and capital markets which hinder economic growth. Thus, promotion of sound, organized, well-integrated institutions and agencies of money and capital markets becomes the important function of a central bank in a developing economy. It would have to take a direct and active role first in creating or helping to create the machinery needed for financing development activities all over the country and secondly, in ensuring that the finance available flows in the directions intended. Some vital sectors, like-agriculture, small industries etc in the developing economies have suffered due to unsatisfactory organization for the supply of credit to these sectors. Bangladesh bank has the responsibility to improve the position by making special efforts for providing credit facilities to these priority sectors on relatively easier terms. The bank is also required to make adequate arrangements for the expansion of long-term finance for industries. Some separate institutions may have to be created for the purpose. The bank also meets a part of the requirements of the government finance through deficit finance, the magnitude of which has to be decided carefully so that economic stability is not greatly impaired. In developing economies, in fact, the development aspect of the central bank functions is of greater importance than its regulatory aspect. The contribution it can make to the regulation, direction and guidance of such credit institutions as exist at the time must be of secondary and lesser consideration. The objectives of Bangladesh banking policy in a developing economy stated as follows: 1. To assist in the mobilization of savings in the community and promote capital formation;

2. To promote the spread of monetization and monetary integration through the development of an integrated commercial banking system. 3. To make adequate provision of credit necessary for fulfillment of the targets of production and trade. 4. To extend monetary support to the authorities in the central task of allocation of resources among different sectors in the economy. 5. To help in maintaining general price stability and preventing inflationary tendencies from getting out of hand. Thus, to develop economy, Bangladesh bank actively participate in the growth process and create favorable conditions for fostering growth with stability.