The Senate on Monday passed 'State Bank of Pakistan Amendment Bill 2010', submitted by the Senate Standing Committee on Finance, after some amendments believed to have softened the bill passed by the National Assembly for a strong and autonomous central bank. After laying of report by the Senate Standing Committee on Finance, the leader of the House, Nayyar Hussain Bukhari, moved the bill, which was passed by the Senate.
With the amendments and omission of various clauses, the envisaged restrictions on government borrowing and monetary committee have been abolished. The SBP Amendment Bill has inserted a new section 9C (Limitation on Federal Government borrowing). According to the amendment, the federal government borrowing from the Bank shall be such that at the end of each quarter they shall be brought to zero, barring the ways and means limit that shall be determined by the Central Board from time to time.
The debt of the Federal Government owed to the Bank as on April 30, 2011 shall be retired not later than eight years from that date of borrowing. If any of the provisions of sub-section (I) and (2) are not observed by the Federal Government, the Finance Minister Shall place before the Parliament a statement giving detailed justification for the said failure".
The amended bill further introduced a new provision of the "Open Market ad Credit Operations. It says that the bank may operate in the financial markets by buying and selling outright (spot or forward) or under repurchase agreement of government securities purchased in the secondary market or such other means as may be deemed expedient, and by lending or borrowing claims and marketable instrument, as well as precious metals and conduct credit operations with banks operating in Pakistan, with lending based on adequate collateral.
The Central Board shall determine the types of instruments and activities and other operational methods of monetary control including Shariah-based instruments to be used for open market and credit operations; and it shall announce the conditions under which the Bank stands ready to enter into such transactions." (3) For the purpose of regulating the monetary and credit system the Bank may issue certificates of deposit and new Instruments Including those that are Shariah compliant, it added.
Through another amendment, eight directors, including at least one from each province, who shall be eminent professional in the field of economics, finance, banking and accountancy be appointed by the Federal Government. Those appointed to the Board shall have no conflict of interest with the business of the bank. Moreover, two eminent macro or monetary economists with proven record of research and teaching be appointed by the Federal Government.
The amended bill further stated that the bank may directly or indirectly purchase, hold, and sell currencies, financial and capital instruments, including indices and derivatives, issued by governments, agencies, local authorities corporate, and supranational in countries, wherever issued, whose currency has been declared as approved foreign exchange and the remaining effective maturity of which is determined to be of not more than thirty years at the time of purchase.
Provided that the restrictions relating to maturity shall apply to securities held by the State Bank on the date on which this Act comes into force or any securities that may be received as assets under the Pakistan (Monetary System and Reserve Bank) Order 1947. The permissibility of each of asset class shall be determined by the Central Board. The Bank may appoint managers, custodians, consultants, and any other professional advisors for the effective management of Foreign Exchange Reserves of the country.
Substitution of section 36, Act XXXIII of 19564n the said Act, for section 36 the following shall be substituted, namely:- Minimum Reserves.-(1) The Bank may require banks or financial institutions to hold minimum reserves on deposit accounts with the Bank in pursuance of its monetary policy objectives.
The Bank may require the banks and financial institutions to hold special reserves on deposit accounts with the Bank in pursuance of its monetary policy or risk management of banking or financial sector and may provide for any remuneration or return on such special reserves. The Bank shall, by regulation, establish the method for calculating the minimum reserves required to be maintained.
A new section has been added which says that the Bank, the members of the Central Board or the staff of the Bank, shall not take instructions from any other person or entity, including government or quasi government entities.
The autonomy of the Bank shall be respected at all times and no person or entity shall seek to influence the members of the Central Board and Monetary Policy Committee or the staff of the Bank in the performance of their functions or interfere in the activities of the Bank. The Senate also passed Industrial Development Bank of Pakistan reorganisation and conversion bill 2010.