Under § 24 of State Bank of Pakistan Ordinance 1955 the Bank has the sole right to issue bank notes for periods fixed by Federal Government. Rate of exchange is linked to basket of currencies and rate is fixed on daily basis against U.S. dollar by State Bank of Pakistan and vary according to transaction.
The regulation of the Pakistani currency is primarily governed by the State Bank of Pakistan Act, 1956. This Act outlines the roles, responsibilities, and powers of the State Bank of Pakistan (SBP), the central bank of the country. The SBP is responsible for regulating the issuance, circulation, and control of the currency in Pakistan.
Key Provisions of the State Bank of Pakistan Act, 1956
- Issuance of Currency: The Act empowers the SBP to issue banknotes and coins. The design, form, and material of the currency are determined by the federal government but issued by the SBP.
- Monetary Policy: The SBP is responsible for formulating and implementing the monetary policy to achieve stability in the value of the Pakistani rupee, control inflation, and foster economic growth.
- Regulation and Supervision: The SBP oversees the banking sector, ensuring the stability and soundness of the financial system. It regulates the operations of banks and other financial institutions, including their adherence to the legal reserve requirements.
- Foreign Exchange Regulation: The SBP controls the foreign exchange reserves and regulates foreign exchange transactions to stabilize the currency’s external value and manage the balance of payments.
- Legal Tender: The currency issued by the SBP is declared legal tender, meaning it must be accepted for the settlement of debts within Pakistan.
Supporting Legislation
- Foreign Exchange Regulation Act, 1947: This Act complements the SBP Act by governing the exchange of foreign currencies in Pakistan. It provides the legal framework for foreign exchange transactions and controls the movement of foreign exchange across the borders.
- Banking Companies Ordinance, 1962: This ordinance provides additional regulatory oversight for banking operations, ensuring that banks operate in a sound and stable manner under the supervision of the SBP.
Recent Amendments and Developments
The SBP Act has undergone several amendments to enhance the central bank’s autonomy and strengthen its regulatory framework. For instance, recent amendments have focused on improving the SBP’s ability to conduct independent monetary policy, enhance financial stability, and ensure better governance of the central bank.
Conclusion
The regulation of Pakistani currency is a comprehensive process governed by the State Bank of Pakistan Act, 1956, and supported by other related financial and banking regulations. The SBP plays a crucial role in ensuring the stability and integrity of the currency through its regulatory, supervisory, and policy-making functions.