I wish first to say on behalf of myself and the Directors of the State Bank how deeply we appreciate the honour which Quaid-i-Azam has done us by granting our request to him to perform the opening ceremony of the State Bank of Pakistan today. When we conveyed this request to him towards the end of May, he was preparing to leave for Quetta.
We were informed almost immediately that he had been pleased to grant our request and that if his stay in Balochistan extended beyond June 30, he would interrupt it to pay a visit to Karachi, specially for this occasion of national importance.
The favour thus bestowed on us is the measure of the significance attached to the opening of the State Bank and has greatly encouraged us in our resolve to face the task that has been assigned to us of organising and piloting this Bank so that it should emerge eventually as a powerful institution for the progress and welfare of our new-born State and its people.
The State Bank of Pakistan has from today taken the place of the Reserve Bank of India in Pakistan and we now enjoy complete independence in the domain of banking and currency without which our freedom to order our economic affairs would be very severely restricted and circumscribed. The State Bank will be the Central Bank of Pakistan as Bank of England is for the United Kingdom, the Federal Reserve Bank for the United States and Reserve Bank of India for India. It will be the banker of the Central and Provincial Governments of Pakistan.
It will be the bank with which other banks will maintain their reserves of cash balances. It will have the sole right of issuing currency notes in Pakistan and will be responsible for managing the currency of Pakistan in the best interests of the country. It will be the custodian of the monetary reserves of the country which includes the reserves of foreign currencies earned by our trade and commerce.
It will be charged with the duty of maintaining the international stability of our currency in accordance with the policy laid down by the Government from time to time. It will be responsible for the floatation and management of public loans on behalf of the Central and Provincial Governments. Similarly, it will manage exchange control for the Central Government of Pakistan. It will be the chief adviser of the Government on all matters relating to credit, currency, floatation of loans, exchange control, public debt and other monetary problems.
It will also have to see that the commercial banks are following sound methods of business and maintain sound credit conditions in the country so that trade and commerce should flow smoothly and add to the happiness and prosperity of the country.
It will be responsible for taking all possible steps for ensuring stability in the economic sphere to the extent that it is possible to do so by action in the monetary field. The commercial banks will be entitled to look to the State Bank for support and advice at all times.
One of the main tasks entrusted to the State Bank under the State Bank of Pakistan Order, is to regulate credit to the best advantage of the country. The banks of a country constitute the main organism through which credit is regulated and controlled. The State Bank, like the central bank of any other country, will thus have very definite responsibilities to perform in relation to the other banks. It must maintain a constant vigil to see that sound banking and credit conditions are maintained.
The power exercised by the banks in regulating and controlling the economy of a country is incalculable and its extent is not appreciated by those who are not initiated into the secrets of their working. This power is available to the banks in the pursuit of their main object which is to earn profits. A central bank, on the contrary, is not a commercial institution working for profit but a national institution formed for well-defined objects of a national character. Its duty is to guard and promote the national economy on the lines prescribed by Government and in discharging this duty it must not be actuated by the profit motive.
About 50 years ago, very few countries had central banks and even where some banks had begun by force of events to discharge the duties of central banks, the position had not fully crystallised and the concept of central banking had not been clearly appreciated and established. The Bank of England, since its formation more than 2_ centuries ago, had been developing the characteristics of a central bank. Progress took place in certain other countries also in the same direction.
Towards the beginning of this century, as banking spread and the people began more and more generally to deposit their cash with the banks, the possibilities of financial panics, if not of crises, with unfortunate results on business and trade, forced themselves upon public attention. The advantages of central banking became clear and it came to be recognised as an essential part of a banking and credit structure.
The usefulness of central banking became firmly established during the First World War, after which one country after another established its central bank. Today, there is hardly any country without a central bank of its own. Central banks inspire confidence among the people and ensure stability of their respective banking and credit system. Chaos is replaced by order and fear of recurrent panics by confidence in the stability of banking.
They render international co-operation possible and the countries are brought closer together through them for dealing with their common problems in the monetary field. After the Partition of India in August, 1947 we hesitated for some time due to serious inadequacy of trained manpower but logic of events re-inforced by our faith in our future brought us to the inevitable conclusion that Pakistan must have a central bank of her own for the better management and regulation of her affairs.
We are resolved to face whatever difficulties come in our way and it is in this spirit that we are establishing the State Bank of Pakistan today. In establishing this Bank we have had to contend with serious difficulties due to lack of time and trained staff.
The Reserve Bank of India was opened on April 1, 1935, but its nucleus with the necessary complement of senior officers was formed in February, 1934 and the Governor was appointed in December, 1934. We were able to appoint the Chief Accountant and the Secretary of the State Bank barely a month ago.
The Muslim officers and staff of the Reserve Bank, who have opted for service in Pakistan, are barely sufficient even for a few essential branches of the Bank. We have, therefore, necessarily to make generous plans for the training of staff and arrangements are being made to this end. Till the Bank is provided with the full complement of trained staff, its activities must remain limited and it will have to confine itself to the performance of its basic and essential duties.
The problem presented by the inadequate supply of trained staff is not, however, confined to the State Bank alone. In the past banking was kept as a close preserve of non-Muslims with the disastrous consequences that were witnessed for our trade and commerce on the migration of non-Muslims from West Pakistan and from which we are still suffering.
Measures have to be taken to ensure an adequate supply of trained staff for banking in Pakistan so that they will be available in sufficient numbers to the commercial banks to enable them to improve and expand their services. They will also indirectly stimulate the opening of new banking enterprises which are urgently required in our country.
We are fully alive to the urgency of this problem and so are the Government of Pakistan, who have already made the State Bank responsible for the selection and training of academically well qualified young men so that an adequate supply of bank officers should become available within the next few years. Banking in our country is waiting for young men who will choose it as their career and devote their talents to its promotion and development.
They alone can make banking an effective instrument in the cause of national service. We, on our part, are resolved that the State Bank shall fulfil truly and surely the role assigned to it and thereby make its contribution in full measure towards the development of banking on sound lines for the greatness and prosperity of Pakistan.
There is very rightly a general demand from the people of Pakistan for a clarification of the policy of Government regarding the ideology which is to guide and inspire us in regulating our political, social and economic life. The principle of complete equality and brotherhood is universally recognised to be the most outstanding feature of Islamic society. What is, however, not so generally recognised and appreciated is the provision made, according to what is clearly a well devised plan, for preventing concentration of wealth without killing the essential incentive to individual initiative and enterprise. It is this ideology which must inspire us in regulating our economic life.
Banking practices must be subjected to careful scrutiny on scientific lines by competent economists well acquainted with the basic principles and requirements of Islam. Their object must be to find out in what manner and on what lines it would be practicable to harmonise banking practices with the requirements of Islamic ideals of social and economic life. It is our intention that the research organisation, which we propose to establish in the State Bank, should devote special and unremitting attention to this most important aspect of our ideological problem.
It was less than 3 months ago that orders were given to take steps for establishing this Bank. The few officers and other members of the staff whom we were able to assemble have worked literally night and day undeterred by the great magnitude of their task. They have set an example on which the Bank will be able to look back with pride.
Our thanks are due to the Karachi Municipal Corporation, who by placing this building at our disposal enabled us to overcome one of the main difficulties we encountered in establishing this Bank. We are very thankful to the Public Works and Telephone Departments who have carried out their part of the work at very short notice for preparing this building for occupation by the Bank from today.
In conclusion I wish again to express my gratitude and that of my colleagues to our Quaid-i-Azam for the honour he has done us and the Bank by coming to Karachi at great personal discomfort, specially to perform the opening ceremony. His blessings constitute a guarantee for the success and future greatness of this Bank.
I also wish to thank our guests who have been kind enough to accept our invitation to attend this ceremony to wish God speed to our Bank on its career. We thank them all. Replying to the address of welcome by the Governor, State Bank, the Quaid-i-Azam said:-
The opening of the State Bank of Pakistan symbolizes the sovereignty of our State in the financial sphere and I am very glad to be here today to perform the opening ceremony. It was not considered feasible to start a Bank of our own simultaneously with the coming into being of Pakistan in August last year. A good deal of preparatory work must precede the inauguration of an institution responsible for such technical and delicate work as note issue and banking.
To allow for this preparation, it was provided, under the Pakistan (Monetary System and Reserve Bank) Order, 1947 that the Reserve Bank of India should continue to be the currency and banking authority in Pakistan till September 30, 1948. Later on, it was felt that it would be in the best interests of our State if the Reserve Bank of India were relieved of its functions in Pakistan as early as possible.
The date of transfer of these functions to a Pakistan agency was consequently advanced by three months in agreement with the Government of India and the Reserve Bank. It was, at the same time, decided to establish a Central Bank of Pakistan in preference to any other agency for managing our currency and banking. This decision left very little time for the small band of trained personnel in this field in Pakistan to complete the preliminaries and they have by their untiring effort and hard work completed their task by the due date which is very creditable to them, and I wish to record a note of our appreciation of their labours.
As you have observed, Mr Governor, in undivided India banking was kept a close preserve of non-Muslims and their migration from Western Pakistan has caused a good deal of dislocation in the economic life of our young State. In order that the wheels of commerce and industry should run smoothly, it is imperative that the vacuum caused by the exodus of non-Muslims should be filled without delay. I am glad to note that schemes for training Pakistan nationals in banking are in hand.
I will watch their progress with interest and I am confident that the State Bank will receive the co-operation of all concerned including the banks and universities in pushing them forward. Banking will provide a new and wide field in which the genius of our young men can find full play. I am sure that they will come forward in large numbers to take advantage of the training facilities which are proposed to be provided. While doing so, they will not only be benefiting themselves but also contributing to the well-being of our State.
I need hardly dilate on the important role that the State Bank will have to play in regulating the economic life of our country. The monetary policy of the Bank will have a direct bearing on our trade and commerce, both inside Pakistan as well as with the outside world and it is only to be desired that your policy should encourage maximum production and a free flow of trade. The monetary policy pursued during the war years contributed, in no small measure, to our present day economic problems.
The abnormal rise in the cost of living has hit the poorer sections of society, including those with fixed incomes, very hard indeed and is responsible to a great extent for the prevailing unrest in the country. The policy of the Pakistan Government is to stabilise prices at a level that would be fair to the producer, as well as the consumer. I hope your efforts will be directed in the same direction in order to tackle this crucial problem with success.
I shall watch with keenness the work of your Research Organisation in evolving banking practices compatible with Islamic ideals of social and economic life. The economic system of the West has created almost insoluble problems for humanity and to many of us it appears that only a miracle can save it from disaster that is now facing the world. It has failed to do justice between man and man and to eradicate friction from the international field. On the contrary, it was largely responsible for the two World Wars in the last half century.
The Western world, in spite of its advantages of mechanisation and industrial efficiency is today in a worse mess than ever before in history. The adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contented people. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice.
We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save it and secure the welfare, happiness and prosperity of mankind. May the State Bank of Pakistan prosper and fulfil the high ideals which have been set as its goal.
In the end I thank you, Mr Governor, for the warm welcome given to me by you and your colleagues and the distinguished guests who have graced this occasion as a mark of their good wishes and the honour you have done me in inviting me to perform this historic opening ceremony of the State Bank which I feel will develop into one of our greatest national institutions and play its part fully throughout the world.
After delivering his address, the Quaid unlocked the big silver lock inscribed with the words "State Bank of Pakistan" with a silver key and went round the building. The silver lock and key, which were locally manufactured, were then presented to the Quaid. The proceedings were relayed by Radio Pakistan from its two stations in West Pakistan and transmittor of Pakistan Navy also directed the programme to East Pakistan.
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