In recent time almost all developing countries are experiencing a peculiar situation in their banking sector. A class of so-called super rich are using commercial Banks as a tool to transfer money to their chosen foreign destinations. These so called business magnets manage the various commercial Banks specially those belonging to the Govt. to sanction huge amount of loans and within short time become defaulters. In Bangladesh the amount of defaulted money stands at present more than Tk. 1 lac Crore. Bangladesh Bank which is the central Bank of Bangladesh could not yet play any effective role to control the trend so far. In Bangladesh almost all the commercial Banks owned by the Govt. are suffering from capital shortage constantly and the Govt. is managing a considerable amount of Capital for those Banks from the taxes paid by the people. This is absolutely a violation of financial norms and ethics. In the present budget (2017-2018) Tk. 2000/- crores have been allocated for the purpose.
In fact the financial crisis is global. This is the crisis of last several decades the Latin America’s debt melt down in the early 1980s, the savings and loan collapse of the early 1990s, the Asian financial blowup of the late 1990s. It is so clear that there is no responsible and effective authority at the center of the global finance. Federal Reserve of US played an effective role as the prime financial institution of the powerful economy. But with the growth of capital market, with the emergence of European Union with a powerful currency “Euro” and advent of china, a shift of wealth to Asia and Persian Gulf. Moreover down- ward trend of American economy itself, the Federal Reserve lost its capability to play an effective role in this regard.
International Monetary Fund (IMF) was also organized as a central financial organization, it had also miserably failed because of the above reasons. It is high time for the big economies and the emerging economies to take immediate measures to establish a global central Bank with sufficient power for controlling and supervising global financial system. Global Bank will constantly monitor irregularities and violations in the global market and it will alert national regulators and the central Banks of the respective countries which will take necessary actions and modify the Policies. Besides the commercial Banks recently developed financial institutions like hedge funds, private equity group and sovereign wealth funds which are now unregulated. A global central Bank is not a substitute for the national central Bank those will have the main responsibility of regulating monitory policy in their respective countries. But they have to follow the policies that are compatible and necessary for the global growth and world financial stability.
In forming a global central Bank, political realities must be taken into consideration. Its Board would include not only the top financial officials but it will also include Directors from the united states, the U.K. the “Euro” zone and china, Japan, Saudi Arabia, Brazil, Australia, Canada, South Africa and if necessary a few others.
The proposal for global central Bank may face criticism. Among many charges critics will criticize and protest’ the establishment of “world Govt.” But we have already a “world trade organization” with binding powers over trade disputes. Nobody can deny the fact that this international trade organization has brought about an order in the international trade. We have also a world Health organization for communicable diseases with the ability to quarantine entire countries .A world court is also functioning which contributed a lot to settle many disputes between the countries; it is undoubtedly contributing a lot to the world order and peace.
A global Central Bank is needed for the supervision and regulation of the almost rudderless existing global financial system. It could also be the regulator of large global financial institutions as city group and others global financial giants. After constant monitoring and supervision of risks that are building in the world financial system, the global Bank can alert banks and national regulators about the incoming troubles and suggest modifications of their existing policies.
Under any circumstances main responsibility for sound regulatory policies and monetary stability remain on respective country. Of course undoubtedly global Bank would have serious influence when it comes to following policies compatible with global financial stability and world economic growth.