The banking reforms proposed by the interim government have gained significant support from economists and civil society, in contrast to other reform initiatives that have seen limited progress. One key reform is the Bangladesh Bank Ordinance (Amendment), 2025, aimed at granting autonomy to the central bank, a move long overdue. This amendment is seen as a crucial step to prevent the misuse of the Bangladesh Bank for deficit financing purposes, as seen in the past. If implemented, it has the potential to modernize the central banking system, surpassing the outdated Bangladesh Bank Order of 1972.
Key components of the proposed ordinance include elevating the governor’s status to that of a minister, establishing a search committee to suggest governor candidates, requiring parliamentary approval for governor appointments and removals, excluding government officials from the BB board, having the governor and deputies sworn in by the chief justice, and extending the governor’s term to six years.
While many aspects of the proposed reforms align with the requirements of modern central banking, certain areas need refinement to ensure fair and transparent governor appointments. It is crucial that the composition and selection process of the search committee are clearly defined, with members possessing relevant expertise and credibility. Transparency in the nomination process and rigorous evaluation of candidates’ qualifications are essential to uphold the central bank’s integrity.
The involvement of a politically neutral search committee is vital to prevent undue influence in the governor selection process. Parliament should openly debate and rank governor candidates, with the final selection made by the president from a shortlist provided by the prime minister. This rigorous selection process aims to ensure that the central bank governor is a qualified and independent leader capable of guiding monetary policies effectively.
The proposed ordinance also addresses the swearing-in of the governor and deputies by the chief justice, emphasizing the importance of upholding institutional integrity. However, the appointment process for deputy governors, often influenced by internal factors, should be reviewed to align with the standards set for governor appointments.
Inclusivity in the formation of the BB board is crucial for effective policy implementation, necessitating the involvement of key economic policymakers from entities such as the finance ministry, NBR, BIDA, and BSEC. Collaboration among these institutions is essential for achieving economic stability and promoting growth.
Clear guidelines for the removal of the BB governor, emphasizing security and accountability, are essential to prevent malpractice and corruption. The proposed reforms also suggest presenting monetary policy to parliament, renaming the ordinance to the Bangladesh Bank Autonomy Act, and considering a name change to “Bangladesh Central Bank” to reflect its national importance accurately.
Overall, the proposed banking reforms aim to enhance the autonomy and effectiveness of the central bank, aligning it with international best practices and ensuring transparency and accountability in the governance of monetary policies.