Even after nearly seven decades since its establishment, the debate over the autonomy of Nepal's central bank is ongoing. The central bank, which plays an important role as the bank of banks, the government's economic advisor, and the creator and operator of monetary policy, should be independent and autonomous from its inception.

Ironically, the Rastra Bank never got such an opportunity. This is why the debate on its autonomy is still going on. The government has now again initiated the process of amending the Rastra Bank Act, 2058 BS, with the aim of making the Rastra Bank autonomous and more powerful in regulation and supervision. The amendment bill of the act proposes to make the Rastra Bank's Board of Directors independent and autonomous, and to make the Rastra Bank's activities effective from all aspects in terms of regulation. Now all parties must be serious about reaching a conclusion on this issue.

Legally, the Rastra Bank is still an autonomous body. However, in practice, it has never been able to become autonomous. Fiscal policy (budget) and monetary policy are the two main policies of the country. Prosperity in the country is possible only through effective coordination between these two policies. Therefore, strong and effective coordination between the Ministry of Finance, which conducts fiscal policy, and the Rastra Bank, which conducts monetary policy, is essential. However, in the context of Nepal, from time to time, good relations have not been maintained between the Ministry of Finance and the Rastra Bank most of the time. The Cold War between the then Finance Minister Janardan Sharma and former Governor Mahaprasad Adhikari can be considered. For this reason, the then government decided to dismiss former Governor Adhikari on Sharma's proposal.

However, after receiving an interim order from the Supreme Court, Governor Adhikari completed his five-year term. This conflict between them could not improve the economy. At that time, some of the government's work was not carried out by the Rastra Bank and the Ministry of Finance did not give priority to the work carried out by the Rastra Bank. When the country was in trouble, the Ministry of Finance and the Rastra Bank did not coordinate effectively with each other, which led to the economy becoming even worse. Even now, the inability to do good work at that time is considered the reason why the economy has not become dynamic.

The proposed bill provides that the directors appointed by the government should be experts in their respective fields and be independent. For this, it has been proposed to prohibit officials and employees of the Government of Nepal and public institutions, except for the Secretary to the Ministry of Finance, from becoming directors of the Rastra Bank. It has also been proposed to provide that directors other than the Governor and Deputy Governors cannot become directors until three years have passed since the employees working in the bank retired.

The bill provides for the establishment of a general reserve fund by the National Bank and the use of such fund to cover the bank's net losses and increase capital. It has been proposed to establish a revaluation reserve fund to account for revaluation profits or losses on financial instruments, foreign exchange, gold and other assets in which the National Bank has invested through the amendment to the act. 

There is a provision to establish a financial development fund not exceeding five percent of the total monetary liabilities for the stability of the financial sector, increasing financial access, strengthening the financial system and developing the overall financial sector. The government has proposed to define digital banks, digital currencies and financial holding companies in the National Bank Act. Although the government has included the issue of licensing digital banks through the budget, this proposal has been made because there is no provision for digital banks in the Nepal Rastra Bank Act.

The bill proposes to increase the general public's access to banking and financial services, increase the general public's confidence in the banking and financial system, act as a macroprudential regulator, and take control of or 'resolve' troubled banks or financial institutions in accordance with the prevailing law. The National Bank must be more autonomous in these provisions.

Currently, the Governor and Deputy Governor are appointed by the government, and the Finance Secretary is an ex-officio member of the Board of Directors of the National Bank. It is almost impossible for a person who is not a member of the ruling party or is not close to it to become the Governor and Deputy Governor. The remaining three directors are also appointed by the government. Questions have always been raised about the qualifications and capabilities of the directors appointed in this way. This is another reason why the National Bank has not been able to become autonomous. Currently, of the three directors appointed by the government to the Board of Directors of the National Bank, one is a former Deputy Governor of the National Bank and two are former Executive Directors.

But the existing Act states that directors appointed by the government should be people who have gained fame by acquiring knowledge and experience in different fields. However, people like this are also appointed under the guise of power and access. Based on these examples, the Act alone cannot make the Rastra Bank autonomous. The government should appoint good people instead of our people in the appointment of all the governors, deputy governors and directors. Because the Rastra Bank is not an institution that employs relatives or workers. Since the Rastra Bank plays an important role in the operation of the country, the government needs to pay attention. 

If there is political influence in the appointment process, there is no point in having 'autonomy' in the Act alone. The first objective of the Rastra Bank is to control inflation. However, for its own politics, the government can put pressure on the government to make popular decisions, increase credit expansion, reduce interest rates, etc. Such policies can lead to crises such as price instability, currency devaluation, financial risks in the long run.

At such times, the Rastra Bank needs to be autonomous. If the governor or Rastra Bank starts working under pressure from the government, the country may be in trouble. At such times, the NRB should be able to explain to the government what is right and wrong for the country and its citizens and make suggestions for policy arrangements accordingly. Because the NRB is not only the guardian of the government's dignity but also an economic advisor. Thus, autonomy is needed to allow the NRB to remain in its position.