President to pick BB governor from search body candidates

Infograph: TBS

Highlights:

• Governor appointment via independent six-member search committee
• Governor removal only through Supreme Court justice process
• Bangladesh Bank gains full policy, financial, operational autonomy
• No government officials on bank board or MPC
• Mandate includes ensuring price and financial stability
• Reform aligns with IMF recommendations for central bank independence

In a landmark move to strengthen central bank independence, the newly finalised draft amendment of the Bangladesh Bank Ordinance, 2025 introduces a "double-layer" system for appointing the governor—a major shift from the current politically influenced process.

Under the revised framework, the president will appoint the governor based on recommendations from a six-member search committee, ensuring a more transparent and insulated selection process. 

Ending political influence

The draft ordinance, aligned with IMF recommendations, aims to shield the central bank from political interference and bring its governance in line with global best practices.

Currently, the Bangladesh Bank Order, 1972 grants the government significant control over key appointments, raising concerns about undue influence. The new system introduces robust safeguards.

Under the "double-layer" system for governor's appointment, a search committee will be formed, and the president will give the final approval. Decisions will be taken by a majority vote of the members present at the search committee meeting, and in the event of a tie, the presiding member will have the power to cast a second or casting vote.

According to the draft, the government is legally restricted from dismissing the governor at will; the governor can only be removed through the same process used for removing a Supreme Court justice, which is a complex constitutional procedure.

The governor's post will be upgraded from secretary to ministerial status, enabling the central bank to achieve full independence in decision-making.

The draft introduces major changes, including the restructuring of the Bangladesh Bank's board and the Monetary Policy Committee, with restrictions on government officials' involvement.

It also clearly defines the Bangladesh Bank's mandate to ensure price and financial stability, granting it full policymaking, financial, operational, and personnel autonomy. Under the proposed ordinance, the Bangladesh Bank will become a statutory organisation.

The ordinance was prepared in line with recommendations from the International Monetary Fund (IMF) as part of its $4.7 billion loan package, aiming to provide legal safeguards for the Bangladesh Bank's institutional, functional, financial, and personal autonomy, shielding it from undue political and private sector influence.

A committee led by Sabeth Siddique, under a task force formed for banking sector reform, prepared the draft, which was presented to the Finance Adviser Salehuddin Ahmed on 4 August at the Bangladesh Bank headquarters in the presence of BB Governor Ahsan H Mansur.

Central bank sources said the Bangladesh Bank also sent the draft to the IMF for review and received a green light to proceed.

Speaking to TBS, Governor Mansur said, "Our objective is to strengthen the Bangladesh Bank to enable it to resist any political pressure."

"In some countries, central banks are constitutional bodies like the judiciary; in others, they operate as independent statutory bodies. But in either case, the key is ensuring independence through a strong legal framework," he said.

Citing the autonomy of the US central bank as an example, he said, "When President Trump pressured the US Federal Reserve to cut interest rates, the Fed replied, 'The time isn't right—we'll decide when it is.' That's the kind of independence we want to establish here."

Structure of the search committee

The president will constitute a six-member search committee to recommend candidates qualified under this ordinance for appointment as governor or deputy governors.

The committee will include: a former finance minister nominated by the president (chairperson); a former governor of the Bangladesh Bank nominated by the president; if unavailable, a former deputy governor; the comptroller and auditor general of Bangladesh; the chairperson of the Bangladesh Public Service Commission; two eminent citizens, nominated by the president, with expertise in economics, banking, or finance — at least one of whom must be a woman.

Removal of governor, deputies, and directors

According to the proposed ordinance, the governor, deputy governors, or non-executive directors may not be removed from office except by the Supreme Judicial Council, in accordance with the Council's procedures, and only on the grounds that they have become disqualified from continuing to hold office or have been found guilty of gross misconduct.

 Why reform the Bangladesh Bank Order

The IMF has long been pursuing the government to amend the Bangladesh Bank Order to ensure its full autonomy, eliminating political interference.

In its latest report titled "Bangladesh: Technical Assistance Report-Interest Rate Corridor Adoption," in 2024, the IMF assessed that the existing Bangladesh Bank Order (BBO) does not guarantee the bank's legal autonomy.

Provisions in BBO Sections 10, 15, and 77 grant powers to the government, which, though seemingly unused to date, could potentially constrain the Bangladesh Bank's ability to "do whatever it takes" to achieve its objectives, especially if the bank is assigned a primary or overriding objective of price stability specified with a numerical medium-term inflation target, according to the report.

BBO Section 82 also places the Bangladesh Bank under the de facto control of the government, the report said.

From the perspective of transparency and accountability, Section 38A of the BBO holds the Bangladesh Bank accountable to parliament. However, the absence of a primary objective for monetary policy complicates the Bangladesh Bank's transparency, communication, and accountability, according to the IMF report.

In this context, Bangladesh Bank proposed the Bangladesh Bank Ordinance 2025 framework based on four pillars consistent with peers, modern central bank practices and IMF recommendations.

The four pillars are: Mandate, Decision Making Structures, Autonomy, Transparency and Accountability.

 Mandate

The draft ordinance stated that a clear mandate of the Bangladesh Bank would be to maintain financial stability, which is absent in the BBO. It specifies the Bangladesh Bank's sole authority to regulate and supervise all banks and finance companies, making it independent of the government and accountable to parliament.

 Autonomy

The governor's appointment and dismissal will be protected from political influence through a double-layer system, according to the draft ordinance. The Bangladesh Bank will have full policymaking, financial, operational and personal autonomy.

Under the financial autonomy, the Bangladesh Bank will have full control over its budget, financial management, allocation of profits to reserve accounts and operational expenditures.

Under functional autonomy, it will have exclusive authority over the formulation and implementation of monetary policy, financial supervision and foreign exchange management. No entity, governmental or private, will interfere in the bank's technical operation or prudential decisions.

The Bangladesh Bank will be restricted from direct financing of government expenditures, according to the draft.

 Decision-making body structure

According to the proposed ordinance, a search committee will select nominees for governor, and the president will appoint who will be equivalent to a cabinet minister.

Interest rates will be set by the independent Monetary Policy Committee (MPC).

The board of Bangladesh Bank will be comprised of the governor, two deputy governors, and five or six independent non-executive members.

No government representation will be on the board.

The board members will have at least 15 years of relevant professional experience for the functioning of the board.

 Transparency and accountability

To ensure transparency and accountability, the governor will be accountable to the Parliamentary Committee. The Bangladesh Bank must publicly define its price stability framework and inflation targets.

The government may appoint auditors, including the Comptroller and Auditor-General, to audit the Bank's accounts. The government ensures quarterly financial data is published online.

 Why is central bank independence so important?

When talking with TBS, Governor Mansur said, "It is because governments often make decisions based on short-term political gains, which can undermine long-term economic stability. The central bank needs the authority to manage the economy and financial sector without interference, allowing it to implement sound policies."

"Key powers — like board appointments, interest rate decisions, and exchange rate management — should lie with the Bangladesh Bank. We're working on legal reforms to ensure that."

"If the current interim government can secure this independence, it will leave behind a lasting legacy and a vital contribution to nation-building," said the governor.

 But, wouldn't a political govt resist this goal?

The governor said, "In many cases, political governments actually support such reforms. Around the world, these kinds of changes have often been initiated by political leaders themselves. Take the US, for example, where the independence of the Federal Reserve was established by politicians."

"Once we set a strong international standard, it becomes very difficult to undo. We need to legally guarantee that no government can interfere with the central bank's operations," he added.