Why the government must be stopped from chaining the central bank governor

Proposed changes to the NRB Bill threatens monetary stability and regulatory independence.

A central bank cannot be independent if its governor’s tenure depends on the government’s approval. Yet that is the risk posed by the amended Nepal Rastra Bank Bill now before the Parliament. The Finance Committee has proposed limiting the governor’s term to three years, with the remaining two years subject to a performance-based extension. It has also retained the government’s power to issue directives to the central bank. These provisions would give the government precisely the leverage a central bank must be protected from: the ability to make its leadership’s job security contingent on political satisfaction.