| Overview : Nepal Rastra Bank (NRB), the central bank of Nepal, was set up in 1956 under the Nepal Rastra Bank Act 1955 and is the monetary, regulatory and supervisory authority of banks and financial institutions. With the pace of development in the financial system, the NRB Act was re-enacted in 2002. According to this new Act, the core objectives of the NRB are to a) achieve price and balance of payments stability, b) manage liquidity and ensure financial stability, c) develop a sound payments system, and) promote financial services. In order to attain these objectives, the Bank's functions and responsibilities include, inter alia, use of monetary policy instruments, foreign exchange management, regulating and supervising the banks and financial institutions, establishing and promoting the payments system, issuing bank notes and coins, and also act as an advisor to the Government of Nepal. Nepal has been practicing a unitary form of government since a long period of time. It has been claimed that this system has not been able to achieve the aimed objectives and rapid development in the country. As people of various languages, ethnic groups, cultures, and traditions are the residents of Nepal, it has been felt that federalism is the solution for their preservation and protections. The term "federalism" describes a system of government in which sovereignty is constitutionally divided between a central governing authority and constituent political units (such as states or provinces). Federalism is based upon democratic rules and institutions in which the power to govern is shared between national and provincial/state governments, creating what is often called a federation. The Constitution of Nepal has been prepared and passed by the Parliament. Article 60 (1) has envisaged a three-level of structure: a) Federal Government; b) Regional Government, and c) Local Government. The Constitution of Nepal mandated that ‘central planning, central bank, fiscal policy, money and banking, monetary policy will be under the purview of the central government (annexure 5 of Constitution of Nepal). Likewise, as to the power of the Federal government it states (in the annexure 6 of the Constitution) that ‘as per the policy of the central bank, the operation of the banks and financial institutions and cooperatives will be carried out’. As the Constitution of Nepal has been passed by the Parliament along with the federal structure of the Government, NRB needs to revisit the way it operates now, plan how NRB should be structured to deal with the operational issues at the federal state levels, although the policy issues will remain at the central level. |
