Bangladesh Bank Board Approves Ordinance Amendments
The Board of Directors of Bangladesh Bank has greenlit amendments to the Bangladesh Bank Ordinance 2025, aiming to implement significant changes in leadership roles, delegations, and financial management. The goal is to safeguard the central bank from political influence.
As explained by officials at the central bank, this new ordinance will replace the Bangladesh Bank Order from 1972 and has been submitted to the Ministry of Finance for final approval after being reviewed by the advisory committee.
In alignment with the recommendations of the International Monetary Fund, the amendments are intended to fortify the central bank’s autonomy and align its governance with established global standards.
The draft stipulates that the President will appoint both the governor and the lieutenant governor. While initial revisions suggested removing government representatives from the board, the final version retains them, maintaining three government representatives on the board.
Mohammed A (Rumi) Ali, a former lieutenant governor, remarked that this move is essential, drawing from his 15 years of experience that highlighted the heavy political pressures affecting the banking sector.
He emphasized that restructuring the board and enhancing governance are vital. The authority to appoint governors and other members is now placed in the hands of the president. Ali mentioned that full independence is crucial for managing inflation and ensuring fiscal stability, calling for autonomy over bank mergers, layoffs, and licensing decisions, given past political pressures.
“This new ordinance will empower central banks to fulfill their roles effectively,” he noted.
Some senior central bank executives, speaking on condition of anonymity, pointed out that the amendment would make central banks responsible for effectively monitoring and managing inflation. They suggested that previous corrupt practices in the banking sector might have merited jail time for many central bankers, but due to claims of political interference, no accountability was enforced.
Ali contrasted this with the situation in the U.S., where the president cannot coerce a central bank into cutting interest rates or dismissing its leadership thanks to its independence. In Bangladesh, government advice was overlooked in 2020, leading to macroeconomic instability that the banks failed to manage.
The revised ordinance grants complete independence to the Monetary Policy Committee, allowing it to operate autonomously. Appointments and dismissals of governors will also not be influenced by politics, giving these officials the legal authority to make decisions without fear of pressure.
Currently, the 1972 Bangladesh Bank Order exerts significant control over key appointments, causing concerns about undue influence. The new framework aims at establishing robust protective measures.
Key Reforms Under the Amendment
The draft establishes a “double layer” appointment system for governors, involving a search committee that will recommend candidates, subject to presidential approval. Decision-making will rely on majority votes, and in case of ties, lawmakers will have a decisive vote.
The new ordinance restricts the government from dismissing governors at will. Removal will follow a complex constitutional process akin to that of Supreme Court judicial removals. Additionally, the governor’s position will be upgraded from that of a secretary to a ministerial role.
Major changes include minimizing government involvement in the Bangladesh Bank’s operations and restructuring its board and monetary policy committee. The ordinance also clarifies the bank’s mission to ensure financial and price stability, asserting its autonomy in policymaking, financial management, and operational decisions while becoming a statutory entity.
This amendment is a part of a $4.7 billion loan package from the International Monetary Fund, aimed at fortifying the Bank of Bangladesh against excessive political and private sector influences.
Structure, Delegation, and Autonomy
The proposed ordinance includes the establishment of a six-member search committee to recommend candidates for the governor and lieutenant governor positions. This committee will consist of a former Minister of Finance (as Chairman), a former Governor or Deputy Governor, the Chief Secretary, the Auditor, the Chair of the Public Service Commission, and two notable citizens with backgrounds in banking, economics, or finance—ensuring diversity with at least one woman on the committee. The president will make the final appointment.
Only the Supreme Judicial Council can remove the governor, lieutenant governor, or non-executive directors for disqualification or serious misconduct. The ordinance clearly defines the mandate of the Bangladesh Bank, stating it will maintain control over financial stability and supervision of all banking entities, free from government intervention.
This structural independence encompasses decisions related to financial management, operational matters, and personnel issues. The banks will also manage their budgets and allocate profits autonomously, with monetary policy decisions being handled by an independent Monetary Policy Committee.
The composition of the board will consist of a governor with at least 15 years of relevant experience, along with two lieutenant governors and five to six independent non-executive directors.
