History

Prior to the establishment of the RMA in 1982, functions relating to central banking were conducted principally by three agencies viz., the Ministry of Finance, State Trading Corporation of Bhutan and Bank of Bhutan.

The Ministry of Finance was the currency issuer of Ngultrum(the Bhutanese currency) and had printed and issued the first Ngultrum notes in denomination of Nu 1,Nu 5,Nu 10 and Nu 100 in 1974 coinciding with the coronation of the Fourth Druk Gyalpo, His Majesty Jigme Singye Wangchuk. The Ministry also functioned as the custodian of foreign exchange balances received, essentially, as aid, which were kept with correspondent banks abroad in the name of the Ministry.

The State Trading Corporation of Bhutan ,( which handled exports to countries other than India and ensured the repatriation of foreign exchange receipts) also held foreign exchange in its own name.
The Bank of Bhutan which handled all commercial banking business in Bhutan also extended credit to the Government; financed other Government organizations against Government guarantees, and was the conduit through which Ngultrum notes and coins were issued to the public.

Implementation of Five Years Plans resulted in robust growth, and accordingly complexity and dynamism of the economy increased. With these rapid developments, the Government, toward the end of the fourth plan, felt the need for an organization, capable of centralizing dispersed central banking functions. With the objective of setting up an institution capable of performing a minimum of central banking functions and one that could generate information adequate for monetary management, the Government to request the IMF for technical assistance on July,1981. Subsequently, Mr Rechards H.Miller, Advisor, Central Banking Department IMF was appointed to study feasibility and recommend legal frame to set up a Monetary Authority.

The Millar Report on the rationale and legal framework for the Monetary Authority was presented to the National Assembly during its 56th Session and on 4th August, 1982 the Royal Monetary Authority of Bhutan Act,1982 was enacted. Immediately after the enactment Her Royal Highness HRH Ashi Sonam Chhoden Wangchuck, Representative of His Majesty in the Ministry of Finance was appointed as its first Chairman while the current Minister of Work and Housing . Lyonpo Yeshey Zimba became the founder Managing Director of the RMA. However due to lack of appropriate and adequate manpower, it took about a year for the RMA to finally emerge as an organization. During the initial stages of RMA’s development, various central banking functions continued to remain with the Ministry of Finance. As organizational capacities developed, particularly after the appointment of Mr Rabenath Mitra , a retired Executive Director of RBI in August 1983 as General Advisor under the IMF Technical Assistance ,these responsibilities were gradually shifted to the RMA in a phase manner.

On November 1 ,1983, the RMA started its actual operation by taking over the liability of notes and coins previously issued by the Ministry of Finance. The RMA also took over from the Government its unissued stock of notes and coins. Thereafter, the Authority took on the responsibility of consolidating, managing and operating foreign exchange reserve. In 1985, the IMF appointed Mr. Claus Dorseif, Bundes Bank Germany, as an advisor in setting up Research and Statics Department and was instrumental in bringing out the first Annual Report in the same year besides other publications such as Quarterly Economic Indicator in 1986.

In 1988, the Authority assumed the role of government banker, holding bulk of government deposits and providing finance through ways and means advance to the Government. The Agreement governing the grant of ways and means advance to the Government by the RMA was executed on 29 February, 1988. With the passage of the Financial Institution Act of Bhutan1992, the Royal Monetary Authority Act 1982 was amended to include licensure, regulation and supervision of financial institutions of Bhutan.

After Bhutan made the momentous transition to a Democratic Constitutional Monarchy in 2008, the Royal Monetary Authority of Bhutan, Act,1982 was revised in entirety to meet the current needs. Accordingly the Royal Monetary Authority Act of Bhutan 2010 was enacted by the Parliament of the Kingdom of Bhutan on June,2010 at its 5th Session of the First Parliament replacing the Royal Monetary Authority of Bhutan Act ,1982. With the historice enactment of the Royal Monetary Authority Act of Bhutan 2010, and the appointment of of Bhutan’s first Central Bank Governor, Dasho Daw Tenzin by the 5th Druk Gyalpo on August 18,2010, the status of the RMA has been elevated to that of an autonomous Central Bank with greater powers in terms of its mode of functioning and decision making process It now performs all central bank’s functions that are generally performed by the central banks in other countries

Summary and interpretation of the Act

Preamble

The preamble of the Royal Monetary Authority Act of Bhutan 2010 describe the basic functions of the royal Monetary Authority as :

“..“.. to formulate and implement necessary monetary policy with a view to achieving and maintain price stability; developing, regulating and supervising banking and financial system, including payments system, to support macro-economic objectives of the Royal government, bring in international best practices and to protect it against systemic risks and thereby enhance its credibility at the national and international levels”

Legal Aspects

The RMA is a body corporate with perpetual succession and a common seal, and have the power to -enter into contracts and issue obligations, and to sue and to be sued in its own name.

Capital

Authorized capital of the Authority is Ngultrun two billion while its paid-up is presently Ngultrum eight hundred which is subscribed and held exclusively by the Royal Government. The paid-up capital can be increased by such further amounts with the approval of by the Government.

Objectives and Functions

The primary objective of the Authority is to formulate and implement monetary policy with a view to achieving and maintaining price stability in the long term, by way of exchange rate targeting to promote macroeconomic and financial sector stability and economic growth in Bhutan. Key policy instruments include reserve requirements (cash Reserve Ratio, statutory liquidity ratio), open market operations through the sale of government Treasury Bills, implementation of prudential norms, and foreign exchange regulations and management.

The secondary objectives of the Authority are to-

In pursuance of its objectives, the functions of the Authority are to:-

Relation between the Royal Monetary Authority of Bhutan and the Royal government

The Royal Monetary Authority of Bhutan is an autonomous body. Though required to support the general economic policy of the Royal Government, the RMA has full autonomy in exercising the powers conferred on it by the Royal Monetary Authority Act of Bhutan, 2010. However, both the Government and the RMA make mutual consultations on important policy issues. The RMA , for example, is required to advise the Government on monetary and fiscal policy and other economic issues that may have important ramifications on the overall macroeconomic development .

In support, the RMA Act of Bhutan 2010 states the following:

Management and Organization Structure

The organizational structure of the RMA consists of a policy making organ, i.e. the Board of Directors, and an executive organ, i.e. Executive Committee.

Board of Directors

The powers of the Authority are vested in its Board of Directors which is responsible for the policy as well as the corporate governance of the RMA.The Board consists of seven members:-

The Governor is appointed by His Majesty the Druk Gyalpo on the recommendation of the Prime Minister while the two Deputy Governors are appointed by the Board from amongst the Authority staff. All members are appointed for a term of five years which may be extended for maximum of one more term .

Names addresses of the current Board of Director of the Royal Monetary Authority of Bhutan are as follows

Executive Committee

The Governor of the RMA functions as its Chief Executive officer. He is assisted by an Executive Committee in implementation of Board’s policy and management of the Authority. Executive Committee consist of seven members, namely the Governor, two deputy Governors and four other members appointed from the Department Heads (Directors) by the Governor in consultation with the Deputy Governors/ The Governor is the Chairman of the Executive Committee .

Names and Addresses of the members of the Executive Committee are as given below;