The State Bank of Pakistan (SBP) was established on July 1, 1948. Since its establishment, besides performing its traditional functions, it is undertaking a number of developmental and promotional functions in. the best interest of the country. These functions in the past, were regarded outside the purview of the central bank. The main developmental and promotional functions in brief are as under.
(1) Traditional functions. The State Bank of Pakistan was originally established to perform the traditional functions of central bank of a country; Monopoly of note issue, acting as a banker to the government, controller of credit, functioning lender of the last resorts.
(2) Building up a sound banking system. For rapid economic development of a country, the building up a sound financial system is necessary. The SBP, immediately after its establishment in. 1948, took up this task. The start was made with the establishment of National Bank of Pakistan in 1949. Since then the total number of domestic scheduled banks has increased to 8058 at the end of June 2000. These banks are playing a prominent role in the mobilization of savings in rural and urban areas of the country.
(3) Assistance to specialized financial institutions. The SBP is providing financial assistance to specialized financial institutions such as ADBP, IQBP PICIC etc. These financial institutions provide medium and long term loans to the leading sectors of the economy. The Agricultural Development Bank of Pakistan (ADBP) provides credit facilities in rural low income farmers rural artisans etc. The Industrial Development Bank of Pakistan (IDBP) provides credit on long term basis and on easy terms to industries etc.
(4) Promotion of export finance. Under the SBP Finance Scheme the commercial banks are providing finance to the exporters at the concessional rates. The SBP is helping the commercial banks in refinance at low rate of interest to the commercial banks. It also formulates various policies relating to export credit.
(5) Credit targets. The SBP gives targets to commercial, banks for providing loans in the field of agricultural industry housing every year. The prescribing of credit targets for these priority sectors has greatly helped in raising production.
(6) Exchange control. The SBP exercises full control on the visible and invisible payments coming to and going out of the country. It also fixes the Pakistani rupee exchange rate with other selective countries of the world (basket of currencies). All foreign exchange transactions are made at official exchange rate.
(7) Training, facilities. The SBP provides a training scheme for imparting- banking knowledge to the employees working in the banks and to those who are to join banks as their profession.
(8) Proper interest rate structure. In order to encourage investment and promote development activities, the SBP fixes a suitable mark up both for the savers and the investors.
(9) Ensuring internal price stability. Along with other objective of economic growth the SBP attempts to maintain internal price stability. The inflationary and deflationary pressures are brought under control through the credit control measures (quantity and qualitative) from time to time.
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