Bangladesh Bank Policy

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CGS Working Paper
Bangladesh Bank Reform
Changes and Challenges
Haydory Akbar Ahmed
Background Paper
The State of Governance in Bangladesh 2006
Centre for Governance Studies
BRAC University
Dhaka, Bangladesh
Ahmed: Bangladesh Bank Reform CGS WP 5
The Centre for Governance Studies at BRAC University seeks to foster a new generation of researchers, public administrators and citizens with critical and analytical perspectives on governance. The Centre’s State of Governance research project is devoted to providing empirical evidence and conceptual clarity about governance in Bangladesh. It seeks to demystify a contentious topic to further constructive discussion and debate. Good governance is often viewed as a means of advancing the agendas of official and multilateral development institutions. The Centre believes, however, that there is a large domestic constituency for good governance; and that governance is properly deliberated between citizens and their state rather than by the state and external institutions. The Centre’s working papers are a means of stimulating domestic discourse on governance in Bangladesh. They bring to the public domain the insights and analyses of the new generation of researchers. The initial working papers were originally developed as contributions and background papers for Centre’s first annual report, the State of Governance in Bangladesh 2006, in collaboration with the Research and Evaluation Division of BRAC. David Skully,

Editor, CGS Working Paper Series
Visiting Professor CGS-BRAC University and Fulbright Scholar Research and Evaluation Division (RED) of BRAC was set up in 1975 as an independent entity within the framework of BRAC. The main mission of RED is to provide research, evaluation and analytical support to BRAC’s development programmes. RED also carries out research on issues of national development importance, often in partnership with other national and international institutions and networks. The State of Governance in Bangladesh 2006 is yet another research partnership that RED is proud to be involved with in partnership with BRAC University’s Center for Governance Studies. All research outputs of RED are available in its website and in hard copies from Ayesha Abed Library, BRAC University, Aarong House, 65 Mohakhali C/A, Dhaka 1212, Bangladesh Bangladesh Bank Reform

Changes and Challenges
Haydory Akbar Ahmed
Research Associate
Centre for Governance Studies
BRAC University
April 2007
Abstract: The Bangladesh Bank, the central bank of Bangladesh, has been subject to an ongoing series of reforms. This paper provides an analytical description of the structure of the Bangladesh Bank; it reviews the reforms from their inception in 1982 through the current Central Bank Strengthening Project and assesses their impact on the Bank’s performance and autonomy. The Grilli-Masciandro-Tabellini (GMT) indexes for political and economic autonomy are calculated. The Bangladesh Bank ranks below its peers in both GMT measures. The views expressed in this paper are those of the author and do not necessarily represent those of the institutions that have supported, published, or disseminated this research. Ahmed: Bangladesh Bank Reform CGS WP 5

Table of Contents
1. Introduction 1
2. Methodology 1
3. Chronology of Financial Sector Reform 2
4. Autonomy 4
4.1 Central Bank Autonomy in Literature 5
4.2 Autonomy of Bangladesh Bank 12
4.3 Credibility 14
5. Legal Framework Reforms 14
6. Regulation and Supervision 17
6.1 Loan Classification and Provisioning 17
6.2 Corporate Governance of Banks 20
6.3 Anti-Money Laundering Measures 20
7 Human Resources and Recruitment 21
8 Automation 22
9 Role of Media 23
10 Conclusion 24
Appendix A: List of Bangladesh Bank Governors 25
Appendix B: Measuring Autonomy 26
References 27
Tables and Figures
Table 1: Ratio of Gross NPL to Total Loans by type of bank 18...
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