MONETARY AND BANKING SYSTEM AND LAW
Nationalism, socialism, democracy and secularism that inspired the people of Bangladesh in their heroic struggle of liberation war are the four fundamental principles of the Constitution. The post-independence planners were so influential in convincing the founder father “Bangabandhu” that Bangladesh would turn into a paragon of progress by simply following a full-scale model of massive nationalization. A bureaucracy-led business plan did not work in other parts of the world, nor did it function in Bangladesh. The theoretical utopia soon nosedived soon after its launching, sending growth prospects down and making Bangladesh a developmental guinea pig. Over the 1970s, Bangladesh’s average GDP growth was 1.5 percent. Coming out from the womb of socialist planning, a rapid march for privatization and market economy has been difficult for the beleaguered nation. Bangladeshi leadership took a risk in unleashing the potential of private enterprises. Steering Bangladesh’s policy in a diametrically opposite direction had truly been challenging. The liberalization policy graduated in three steps in the mid-1980s, early 1990s and mid-1990s, marking a wonderful journey to the pro-market move. Since the 1980s, Bangladesh’s decade-wise average growth shifted roughly one percentage point higher, starting from 3.5 percent to reach 6.5 percent in the 2010s. The country is different in projecting 7 percent growth for the financial year 2016.
The financial system of Bangladesh is made up of three broad fragmented sectors, namely: Formal Sector, Semi-Formal Sector and Informal Sector. The formal sector includes all regulated institutions like Banks, Non-Bank Financial Institutions (FIs), Insurance Companies, Capital Market Intermediaries like Brokerage Houses, Merchant Banks etc., and Micro Finance Institutions (MFIs). The semi-formal sector includes those institutions which are regulated otherwise but do not fall under the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange Commission or any other enacted financial regulator. This sector is mainly represented by Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank and Non-Government Organization. The informal sector includes private intermediaries which are completely unregulated.
Bangladesh Bank is the central bank of Bangladesh and is designed to regulate and monitor these sectors with the help of legal instruments passed by the House of Nation time to time. In this paper the legal instruments that control the monetary and banking system of Bangladesh will be discussed. Especially the laws relating to foreign exchange system, movements of funds, banking system and restriction of foreign banks and financial institutions will be scrutinized.