Kathmandu. KATHMANDU: The government has registered a bill designed to amend the Nepal Rastra Bank Act, 2058 BS in the Federal Parliament with the objective of making the Nepal Rastra Bank (NRB) more autonomous, accountable and technology-friendly. The bill registered by the Ministry of Finance in the House of Representatives has proposed sweeping amendments to the issues related to the central bank’s role, structure, regulatory powers, digital financial system and financial stability.

The government has forwarded the process to amend the existing acts keeping in mind the changes in the national and international economic and financial sector, expansion of financial system, rapid use of digital technology and the changing role of the central bank. According to the Ministry of Finance, the bill has been prepared for legal reforms to make the existing Act unclear and difficult to implement.

Specifically, the proposed bill includes restructuring of the appointment of governor and directors and relieving them from their posts, strengthening the mechanism for maintaining financial stability, legalizing digital currency and clarifying regulatory and supervisory powers of the central bank.

For the first time, the bill has included ‘digital currency’ in the legal definition. It has been proposed to include the digital currency issued by the bank under the term ‘currency’ by modifying the provision which was so far focused on ‘currency notes’. With this, the digital currency issued by the Nepal Rastra Bank will be recognized as a banknote.

Similarly, the definition of financial institution has also been expanded. According to the bill, the institutions conducting remittance transactions, the institutions operating the payment system and digital payment service providers will also be brought under the purview of financial institutions. This will bring digital wallets, payment gateways and remittance service providers directly under the regulation of the central bank.

A new provision related to ‘financial holding company’ has also been added to the bill. A financial holding company is defined as a subsidiary, joint venture or structurally owned entity of a commercial bank or financial institution. It is expected to further streamline the banking group’s structure and ownership management.

As per the amendment proposal, the structure of the Board of Directors of Nepal Rastra Bank will also be changed. Currently, there will be a Finance Secretary, two Deputy Governors and three directors appointed by the government.

The bill proposes to give clear responsibilities to the Nepal Rastra Bank as a macro prudential regulator. The objective is to enhance public access and confidence in the banking and financial system, maintain financial stability and strengthen the role of managing systemic risks.

Similarly, the central bank has been proposed to be authorized to make limited investment or loan in various subsidiary institutions related to the financial system. As per the bill, NRB can invest up to 10 percent of its total capital in institutions working in the areas of securities management, credit valuation, financial information exchange, payment clearing, wealth management and trustee services.

An amendment has also been proposed to the foreign currency exchange rate. The bill further clarifies the authority of the Nepal Rastra Bank to determine the exchange rate system and the provision related to ‘exchange rate system and exchange rate determination’.

According to the government, the Act is being amended to make the NRB’s role more efficient and accountable to maintain price stability, balance of payment stability and credibility of the overall financial system. The proposed amendment is likely to be the tenth as the NRB Act has already been amended nine times since it was promulgated. According to the Ministry of Finance, the Act is being amended with the objective of maintaining the objective, scope and structure of the central bank in line with the internationally accepted concept, strengthening institutional autonomy and making the supervisory and regulatory role more effective.

Likewise, the bill has been brought to update the legal basis to enhance transparency, accountability and professionalism in the decision-making process of the central bank, according to the Ministry.

The Act is being amended to implement the budget statement of the current fiscal year 2082/83, the fourth strategic plan of the Nepal Rastra Bank (2022-2026) and the reform program mentioned in the monetary policy of the current fiscal year. The Nepal Rastra Bank Act, 2058 BS was recently amended through the Act to amend some acts related to the prevention of money laundering and promotion of business environment, 2080 and the Nepal Act to amend some Nepal acts related to cooperatives, 2081 BS.