QUIZ NO: 1

SUBMITTED BY: MUHAMMAD MUIZ ROLL NO: BAU-F18-129

SAP ID:70066414
SEMESTER AND SECTION: BBA-VI-B SUBMITTED TO: Mam Sana Bashir
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Question: You are required to read the article in the given link and justify the reason
why developing countries central bank should or shouldn't be an autonomous body,
justify your reason with evidences.

In many countries the world over, the central bank has been given the mandate to preserve price stability as
its single or primary objective, and been granted autonomy from government to make sure that short-term
political considerations do not interfere with achieving this objective. Accountability to the legislature and
the public at large balance the central bank’s autonomy. Transparency – the third element of the modern
paradigm of central banking – is important for holding the central bank to account, and for making monetary
policy efficient by shaping inflation expectations. In principle, there is a clear division of responsibilities and
accountabilities between the central bank on the one hand, and the government and the Minister of Finance
on the other hand. Even so, information sharing, cooperation and coordination between the central bank and
the government are important in a number of respects. The first and major part of this note focuses on
practical aspects of the cooperation between the central bank and the government, and is based on a survey
of central banks conducted in early 2006. 1 This is followed by a brief review of aspects of the financial
relationship between the central bank and government. Before turning to the survey information, a brief
discussion of the underlying issues may be useful.
Finance ministry or the govt. is that the biggest recipient of bank credit within the country. Borrowing
is so invariably inclined in favors of the govt. If the ministry is an element of the decision-
making method, financial policy formulation can't be freelance. The operate of worth stability, therefore, is
compromised within the method. Moreover, the termination of the financial and financial policy board
shall produce a firewall between the functioning of SBP in city, and also the Q Block in national
capital. it's necessary to recall times once governors want to obtain permission from finance ministers for
even petty matters like permission for international travel. Frequent interferences by the ministry of finance
in forex market operations above all had nearly game SBP autonomy and independence.
Congress has determined the Federal Reserve can best achieve its mission of supporting maximum
employment and stable prices as an independent agency that makes decisions based on the best available
evidence and analysis, without taking politics into consideration.
Experience around the world has also shown that countries with independent central banks that are able to
make decisions free from political influence have better economic outcomes for their citizens.
As in the United States, the Congress set the monetary policy goals for the Federal Reserve—maximum
employment, price stability and moderate long-term interest rates, but gave the central bank independence to
achieve those goals. The Federal Reserve is accountable to the Congress and the American people and
Federal Reserve leaders regularly testify and report to the Congress on how the Federal Reserve is managing
monetary policy.
lack of SBP autonomy reduces the effectiveness of financial policy transmission. The presence of finance
secretary on SBP board constitutes a challenge to the bank’s autonomy. This, not to
mention alternative operational interferences, by the ministry puts the financial organization in an
exceedingly strait jacket. With the passage of the planned amendments to the SBP Act, the financial
organization are additional autonomous in letter and spirit. However, this doesn't mean that SBP
governor can currently be less accountable; if truth be told, true can be the opposite means around.
Hamstrung by the absence of the protecting defend of finance ministry, direct responsibleness to
parliament can demand from its larger responsibility and transparency in policymaking.
In alternative words, financial organization are needed to justify its actions or selections on
grounds supported vigorous due diligence, extraordinary hypermetropy and larger transparency so as to
avoid parliamentary censures.

The governor’s term is planned to vary from 3 to 5 years. that's in line with the policy in various central
banks across the globe. Four out of 5 previous SBP governors were unable to finish their several three-year
tenures thanks to growing government interference they sweet-faced in decision-making processes. This
reflects the opening that exists thanks to the Delaware jure and actual situations that still plague our
governance landscape. If the SBP is to be really created autonomous it's imperative
that it's disentangled from the domain of the ministry of finance and put out the cupboard Division to
satisfy the wants of the government’s ‘Rules of Business’, while not that, we have a tendency to dare say
that the goal of larger SBP autonomy can invariably stay elusive.