The Nepal Rastra Bank (NRB) has recently got Dr Chiranjibi Nepal as its new governor for the next five years.
He, who was Economic Adviser to the Prime Minister Sushil Koirala, grabbed this vital post by outdoing other two candidates- the current deputy governors of the NRB- for the same. PM Koirala fully backed Nepal, affiliated to his party-Nepali Congress (NC)- to assume the office.
It will not be a cakewalk for him to lead the NRB, which in his own words, is the brain of the country’s economy. Apart from acting as financial adviser to the government, the central bank works towards ensuring financial stability in the country by dealing mainly with money and banking — money supply, credit, interest rates, inflation, banking regulation, etc.
His immediate predecessor, Yubaraj Khatiwada, is credited for taking bold yet pragmatic steps to strengthen the country’s financial system. In 2009, he tightened the screws on our Banks and Financial Institutions (BFIs) to avert possible financial crisis which could have triggered from their overexposure to realty. Another crucial reform made by him was to make “stress test” mandatory for all those BFIs mobilizing two billion rupees in deposits. Such test was meant primarily to determine whether they would be able to cope up with sudden financial disaster.
Importantly, Khatiwada, albeit his support to CPN-UML, also did not succumb to any undue political meddling while steering the NRB.
In this light, Nepal will do well by giving continuity to the legacy of integrity and prudence instituted by Khatiwada.
One of the biggest challenges of the new governor is to align the Nepali financial system with the latest global trends.The implementation of Basel-III in Nepal has become important as the country continues to rely on the obsolete Basel-II. The former has provisions for periodic stress testing of BFIs, based on measures like their capital adequacy and liquidity. So, this can help keep tabs on a number of the Nepali banks which are under-capitalized and adopt financial manipulations to manufacture profits.
In recent years, many financial institutions have faced severe crisis due to the illicit disregard of good governance by their top officials. This has, no doubt, negatively affected the public trust towards the country’s banking sector. As such, Nepal, as the steward of the financial system, is required to stringently check financial crimes through bold actions.
Over the years, the role of the central bank has become more challenging proportions due to growing financial intricacies triggered by globalization and economic liberalization.
Such being the reality, the new monetary chief should strategically mobilize the resources of the central bank to improve its capacity, expertise and management.
At the same time, It is also important for him to counter the foxy pressure of politician and financial mafia for the sake of the country’s financial stability. It remains to be seen whether or not he will prove his mettle.