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State Bank of Pakistan has been witness to various historic moments.

The State Bank itself was inaugurated by Quaid-iAzam Muhammad Ali Jinnah on 1st July, 1948.

Quaid-i-Azam's Speech On the occasion of the Opening Ceremony of The State Bank of Pakistan on 1st July, 1948.

"Mr. Governor, Directors of State Bank, Ladies and Gentlemen. The opening of the State Bank of Pakistan symbolises the sovereignty of our State in the financial sphere and I am very glad to be here today to perform the opening ceremony. It was not considered feasible to start a Bank of our own simultaneously with the coming into being of Pakistan in August last year. A good deal of preparatory work must precede the inauguration of an institution responsible for such technical and delicate work as note issue and banking. To allow for this preparation, it was provided, under the Pakistan Monetary System and Reserve Bank Order, 1947, that the Reserve Bank of India should continue to be the currency and banking authority of Pakistan till the 30th September, 1948. Later on it was felt that it would be in the best interests of our State if the Reserve Bank of India were relieved of its functions in Pakistan, as early as possible. The State of transfer of these functions to a Pakistan agency was consequently advanced by three months in agreement with the Government of India and the Reserve Bank. It was at the same time decided to establish a Central Bank of Pakistan in preference to any other agency for managing our currency and banking. This decision left very little time for the small band of trained personnel in this field in Pakistan to complete the preliminaries and they have by their untiring effort and hard work completed their task by the due date which is very creditable to them, and I wish to record a note of our appreciation of their labours. As you have observed, Mr. Governor in undivided India banking was kept a close preserve of non-Muslims and their migration from Western Pakistan has caused a good deal of dislocation in the economic life of our young State. In order that the wheels of commerce and industry should run smoothly, it is imperative that the vacuum caused by the exodus of non-Muslims should be filled without delay. I am glad to note that schemes for training Pakistan nationals in banking are in hand. I will watch their progress with interest and I am confident that the State Bank will receive the co-operation of all concerned including the banks and Universities in pushing them forward. Banking will provide a new and wide field in which the genius of our young men can find full play. I am sure that they will come forward in large numbers to take advantage of the training facilities which are proposed to be provided. While doing so, they will not only be benefiting themselves but also contributing to the well-being of our State. I need hardly dilate on the important role that the State Bank will have to play in regulating the economic life of our country. The monetary policy of the bank will have a direct bearing on our trade and commerce, both inside Pakistan as well as with the outside world and it is only to be desired that your policy should encourage maximum production and a free flow of trade. The monetary policy pursued during the war years contributed, in no small measure, to our present day economic problems. The abnormal rise in the cost of living has hit the poorer sections of society including those with fixed incomes very hard indeed and is responsible to a great extent for the prevailing unrest in the country. The policy of the Pakistan Government is to stabilise prices at a level that would be fair to the producer, as well as the consumer. I hope your efforts will be directed in the same direction in order to tackle this crucial problem with success. I shall watch with keenness the work of your Research Organization in evolving banking practices compatible with Islamic ideas of social and economic life. The economic system of the West has created almost insoluble problems for humanity and to many of us it appears that only a miracle can save it from disaster that is not facing the world. It has failed to do justice between man and man and to eradicate friction from the international field. On the contrary, it was largely responsible for the two world wars in the last half century. The Western world, in spite of its advantages, of mechanization and industrial efficiency is today in a worse mess than ever before in history. The adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contended people. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save it and secure the welfare, happiness and prosperity of mankind. May the Sate Bank of Pakistan prosper and fulfil the high ideals which have been set as its goal. In the end I thank you, Mr. Governor, for the warm welcome given to me by you and your colleagues, and the distinguished guests who have graced this occasion as a mark of their good wishes and the honour your have done me in inviting me to perform this historic opening ceremony of the State Bank which I feel will develop into one of our greatest national institutions and play its part fully throughout the world." Quaid-i-Azam Muhammad Ali Jinnah 1st July, 1948

The State Bank of Pakistan (SBP) is the central bank of Pakistan. While its constitution, as originally laid down in the State Bank of Pakistan Order 1948, remained basically unchanged until January 1, 1974, when the bank was nationalized, the scope of its functions was considerably enlarged. The State Bank of Pakistan Act 1956, with subsequent amendments, forms the basis of its operations today. The headquarters are located in the financial capital of Pakistan, Karachi with its second headquarters in the capital, Islamabad. Organizational Structure Governor is the head of the State Bank of Pakistan (SBP) and has two Deputy Governors, one each for Banking and Corporate Services. There is one Chief Economist in charge of Banking Regulations. Central Board of Directors Consists of 9 directors. One of them acts as the Corporate Secretary. The Governor of the State Bank presides as its Chairman. Measuring the Money Supply by State Bank of Pakistan M-2, the broader measure, is expected to increase by 20 percent in the year 2007 - 2008 Narrow measure of Money: Narrow measure of Money: M-! Demand deposits at scheduled banks Currency in circulation Other deposits M-1 Time deposits at scheduled banks Deposits at resident foreign banks 1. = 75 percent = 23 percent = 2 percent = 86 percent = 9 percent = 5 percent

The broader measure of money: M-2

Functions of the State Bank of Pakistan Banker to the Government: As banker to the government, SBP: a. Receives deposits (taxes, fees, fines, etc.) on behalf of the federal government. b. Disburses payments (tax refunds, interest, etc.) on behalf of the federal government. c. Manages the national debtbuys, sells, and cashes government securities and pay interest/profit on them. d. Lends money to the federal government as needed. 2. Banker to Banks: As banker to the scheduled banks, SBP: a. Holds deposits made by them as a part of their required reserves5% at this time. b. Lends them funds as a lender of the last resort to meet their pressing needs by discounting their bills of exchange and other 3. Acts as a Clearing House: Provides facilities, physical and/or electronic, to scheduled banks to clear cheques and other claims drawn against each otherdeposited by their customers for collection--by adding up what they owe or owed them and transfer funds from their accounts at SBP. 4.Supervisor of Banks and other Financial Institutions: One of the fundamental responsibilities of the State Bank is regulation and supervision of the financial system to ensure its soundness and stability as well as to protect the interests of depositors. The banking activities are now being monitored through a system of off-site surveillance and on-site inspection and supervision. Off-site surveillance is conducted through regular checking of various returns regularly received from the different banks. On other hand, on-site inspection is undertaken by the State Bank in the premises of the concerned banks when required. To broaden financial markets as also to diversify the sources of credit, a number of non-bank financial institutions were allowed to increase substantially. The State Bank has also been charged with the responsibilities of regulating and supervising of such institutions. 5. Issuer of Paper Currency: State Bank has the sole authority to issue paper notes. It has the prime responsibility to control its supply in order to ensure a stable price of money, i.e., its value or purchasing power. Its notes, however, are not convertible into gold or silver. 6. Exchange Rate Management and Balance of Payment: The Bank is responsible to keep the exchange rate of the rupee at an appropriate level and prevent it from wide fluctuations in order to maintain competitiveness of our exports and maintain stability in the foreign exchange market. As the custodian of countrys external reserves, it is responsible for management of the foreign exchange reserves.

7. Developmental Role of SBP: The Banks participation in the development process has been widened in the form of rehabilitation of banking system, development of new financial institutions and debt instruments in order to promote financial intermediation, establishment of Development Financial Institutions, directing the use of credit according to selected development priorities, providing subsidized credit, and development of the capital market. 8. Non-traditional Role: The non-traditional or promotional functions, performed by the State Bank include development of financial framework, institutionalization of savings and investment, provision of training facilities to bankers, and provision of credit to priority sectors. The State Bank also has been playing an active part in the process of Islamization of the banking system. 9. To Formulate and Implement the Monetary Policy: The Bank is also in charge of conducting monetary policy which means changing the supply of money in the economy. The tools of the monetary policy are: a. Changing the monetary base: This directly changes the total amount of money circulating in the economy. The State Bank can use open market operations to change the monetary base. The Bank would buy/sell bonds in exchange for hard currency. When the central bank sells government bonds it receives hard currency in payment, thus reducing the money supply. It buys government bonds and pays hard cash to the sellers, thus, increasing the money supply. b. Changing the reserve requirements: Monetary policy can be implemented by changing the proportion of total assets that banks must hold in reserve with SBP. Banks only maintain a small portion of their assets as cash available for immediate withdrawal; the rest is invested in illiquid assets like mortgages and loans. By changing the proportion of total assets to be held as liquid cash, the SBP changes the availability of loanable funds. This acts as a change in the money supply. c. Changing the discount rate: Banks borrow money from the State Bank by cashing or discounting credit instruments, such as bills of exchange. By raising the discount rate SBP discourages banks to borrow money. If and when the goal is to increase the money supply, the Bank lowers its discount rate to encourage borrowing by the banks and, thus, helps increasing the money supply. Also by calling in existing loans or extending new loans, the monetary authority can directly change the size of the money supply. Affecting a change in nominal interest rates: The contraction of the monetary supply can be achieved indirectly by increasing or decreasing the nominal interest rates. By changing the Discount Rate and by conducting Open Market Operations a change in money supply would affect the nominal interest rates. A tight money supply tends to increase nominal interest rates while an increase in money supply can help bring down the interest rates. A change in the nominal interest rates influences the overall economic activity, rate of inflation, GDP, and economic growth.

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