Central

Bank and
Legal
Presented by:
• Alina Kedem
System
• Tara Shah Sumitted to:
• Susmita Shrestha Raju Raut Sir
 Meaning and concept
Central Bank
• Public institution responsible for implementing
monetary policy, managing the currency of a country
and controlling the money supply.
• Controls the monetary base of the economy,
provides liquidity in time of crisis and also ensures
the integrity of the financial system.
• Nepal Rastra bank is the central bank which was
established in 2013 (1957) under the Nepal Rastra
bank act 2012 (1956).
 The central bank is an
autonomous, powerful,
government-controlled bank
tasked with regulating the banking
industry, addressing currency
concerns, and advising the
government on economic policy.
Its primary aim is to stabilize the
currency and economy while
limiting inflation.
 Establishment of Central bank
• The Central Bank of Nepal, was established
in 1956 under the Nepal Rastra Bank Act, 1955, to
discharge the central banking responsibilities
including guiding the development of the embryonic
domestic financial sector.
• There shall be a separate seal for transaction of
business of the bank.
• The Bank shall be an autonomous and corporate
body with perpetual succession.
 Establishment

• The Bank may, subject to this act, acquire, utilize,

retain, sell and otherwise dispose of or manage
movable and immovable property.
• The bank may sue in its name and the bank may also
be sued in the same name.

• NRB is located at Kathmandu, have authority to open

branch, sub-branch and other at any place within and
outside of Nepal and appoint agents or representatives
as per its requirements.
 Objectives of Central Bank
• To foster the liquidity, solvency and proper
functioning of a stable market-based financial
system.
• To promote stability and liquidity required
banking and financial sector.
• To develop secure, healthy and efficient system of
payment.
 Objectives
• To formulate necessary monetary and foreign
exchange policies in order to maintain the stability of
price and balance of payment for sustainable
development of economy.
• To regulate, inspect, supervise and monitor the
banking and financial system.
• To promote entire banking and financial system of the
kingdom of Nepal and to enhance its public
credibility.
 FUNCTIONS, DUTIES AND
POWERS OF THE BANK
FUNCTIONS NOT TO BE
CARRIED OUT BY THE
BANK
FORMATION OF THE BOARD
Nepal Rastra Bank
Act, 2058
 FUNCTIONS,
DUTIES AND
POWERS OF
THE BANK
To issue bank notes and coins
 To formulate necessary monetary policies in order to
maintain price stability and to implement or cause to
implement them
 To formulate foreign exchange policies and to implement
or cause to implement them
To determine the system of foreign exchange rate
 FUNCTIONS, DUTIES
AND POWERS OF
THE BANK
 To manage and operate foreign exchange reserve
  To issue license to commercial banks and financial
institutions to carry on banking and financial business
and to regulate, inspect, supervise and monitor such
transactions
 To act as a banker, advisor and financial agent of
Government of Nepal
 FUNCTIONS, DUTIES AND
POWERS OF THE BANK
• To act as the banker of commercial banks and financial
institutions and to function as the lender of the last
resort
 To establish and promote the system of payment,
clearing and settlement and to regulate
these activities; and 
 To operate open market transaction through necessary
instruments for liquidity management, 
FUNCTIONS, DUTIES
AND POWERS OF
THE BANK
 To implement or cause to implement any other necessary
functions which the Bank has to carry out in order
to achieve the objectives of the Bank under this Act
(2) While exercising the powers conferred by this Act
or any other prevailing law, the Bank shall have power
to carry out other functions and take actions, which
are incidental thereto Act.
(3) No one shall violate powers conferred on the Bank
under this
 FUNCTIONS NOT TO BE
CARRIED OUT BY THE BANK

Providing any loan, accepting any type of deposit or

making any type of financial gift; 

Purchasing shares of any commercial bank, financial

institution, public corporation or a company or
acquiring any type of proprietary right in any financial,
commercial, agricultural, industrial or other institution; 
 FUNCTIONS NOT TO BE
CARRIED OUT BY THE BANK

Carrying out any type trade; and 

Acquiring right over movable and immovable property by

way of purchase, lease or in any manner whatsoever.
Provided that the Bank may acquire such property as
required for carrying out its function or for achieving its
objectives.
 Formation of the Board
Three Directors
appointed by the
Government of
Nepal from
amongst the
Secretary, Ministry Two Deputy
Governor  of Finance Governors
persons renowned
Chairperson Member Member
in the fields of
Member
Economic,
Monitory, Banking,
Finance and
Commercial Law 
 Governor  Appointed by:
• Minister of Finance
• One person from among the former Governors
• One person designated by Government of Nepal from
amongst the persons renowned in the fields of Economic,
Monitory,
Deputy Banking, Finance and Commercial Law 
Governor Appointed by:
• Government of Nepal, the council of Minister; on the
recommendation of the Governor

Directors Appointed by:

• Government of Nepal, the council of Minister,
Functions of NRB
1. Issue of paper money and coins:
• NRB issues notes based on proportional
reserve system.
• This function enables them to regulate
and control money supply in the country.
• For this purpose, the NRB had set up the
Note Department which was renamed as
the Currency Management Department in
November 2002.
2. Banker to the government:
• The central bank operates as the government’s
banker, not only because it is more convenient
and economical to the government, but also
because of the intimate connection between
public finance monetary affairs.
• NRB is involved in making and receiving
payments for the government. It advances
short-term loans to the government to tide over
difficulties
3. Agent and advisor to the
government:
• NRB provide new loans, issue treasury bills to public
and perform all the functions related to public debt
financing and management
• It keeps the banking accounts and balances of the
government after making disbursements and
remittances
• Central bank advices the government on financial
matters. NRB implements all economic and monetary
policies and government adopt them in practises.
 4. Custodian of banks
• Commercials banks are established with the permission
of NRB. These banks open and maintain their account at
NRB where they must maintain 7% of their total daily
deposit with no interest.
• Cash reserves at NRB increased elasticity and liquidity of
the banking system and of the credit structure as a
whole.
• Central bank also plays an important role in the credit
creation policy of commercial banks.
• Other member banks look to it for guidance, help and
direction in time of need.
5. Custodian of foreign currency:
• It controls receipts and payments in foreign exchange .
• In case of Forex rate fluctuations the NRB can sell and buy the
foreign currencies in the market to minimize the fluctuations
in foreign exchange ratio
• It can ration the foreign exchange in case of emergencies.
• NRB has been aiming to maintain reserve level sufficient for
imports of merchandise and services for at least six months
and for debt servicing of the government foreign debt for a
year
 6. Credit control:
• Central bank controls the money supply and credit in
the country in order to stabilize the price and to
meet the different economic conditions of the
country.
• NRB controls the way credit creation by commercial
banks is done by engaging in open market operations
or bringing about a change in the CRR, contraction
and expansion of credit to control the process of
credit creation by commercial banks.
7. Clearing house function:
• A clearing house is an organisation where mutual
claims of banks on one another are offset, and a
settlement is made by the payment of the
difference
• This expedites clearance of cheques /other
negotiable instruments drawn on different banks
through a single window and helps in settling of
mutual indebtedness of the commercial banks.
 8. Lender of the last resort:
• Commercial banks is required to maintain Cash
Reserve Ratio(CRR) set as 4.0 % in Apr 2023 in
the central bank .
• NRB provides money to its member banks in
times of cash crunch. It performs this function by
providing loans against securities, treasury bills
and also by rediscounting bills.
• NRB helps in protecting the financial structure of
the economy from collapsing.
9. Promotional and development
functions:
• Control inflation, maintain the external balance
of payments, and the stability of the financial
sector.
• Evolving credit institutions , instruments and
yield structure for efficient saving and
allocations of resources consistent with
development objectives.
 NRB relationship with
government and other agencies
 Relation between government of
Nepal and the bank
• Government of Nepal relies on NRB as adviser,
banker, agent and credit control unit to government.
Any contact by government of Nepal with the bank and
by the bank with government of Nepal under this act,
shall be made through the ministry of finance.
 Public Bodies

Co-ordination

Inf
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In
Government
of Nepal
 Coordination with public bodies
• The bank may, in order to achieve its objectives, make
necessary coordination with public bodies or their agencies
or their organs.
• The bank shall, on the request made by government of
Nepal ,provide necessary information on the balance of
payment , banking and financial matters.
• Government of Nepal , public bodies and the private sector
shall , in the request made by the bank, provide necessary
information on economic and financial matters.
 International
cooperation
and
relationship
• NRB shall represent Nepal in international organizations and
associations with matters within the jurisdictions area of bank
such as monetary policies, forex policy and balance of
payment, BFIs’ supervision etc.
• The bank may provide and obtain the services of banking and
payment to/from foreign government, foreign central bank
and international organizations or associations
 International Cooperation
• The bank shall take part in international organizations or
associations working for the financial and economic
stability through international monetary cooperation.

• The bank, while taking part in international organizations or

association as a representative of the kingdom of Nepal,
shall assume the responsibility and undertake the functions
to be carried out on behalf of the country.