Some aspects of central banking in pakistan 1948-1966

Abstract

This study attempts to review and analyse central banking in Pakistan. It has four objectives. (i) to discuss the role of the State Bank in the growth of commercial banks and the money market, (ii) to describe and analyse the operation of the commercial banks, (ill) to discuss the control of the money supply by the State Bank, and (iv) to examine the part played by the Bank in the setting up and operation of specialised financial institutions created to promote the development of agriculture and industry We begin with an account of the salient features of the Pakistan economy to enable readers not familiar with the country to see the banking system in its economic setting. We then go on to examine various facets of the organization, functions and operation of the State Bank, its relationship with the commercial banks and the reasons why it has failed to establish a money market. One of the functions of the State Bank is to control the money supply and in Chapter 5 we show why it has failed to do so and argue that, contrary to the Bank's own view, the absence of a money market is not the real explanation We shall show why it is that in Pakistan the conventional mechanisms for curtailing the money supply appear to have had an opposite effect. In the final chapter this analysis is extended to show how the public's desire to hold cash balances has been influenced by changes in the rate of interest payable on deposits In this chapter we also argue that the agricultural and industrial development banks' concern to provide cheap credit has restricted their ability to mobilise resources and made them unnecessarily dependent on Government and State Bank finance. We conclude by showing that the commercial banks could easily provide more finance for development without endangering their liquidity