Can anyone imagine the central bank of a country without a chairman or governor for six months? It is a difficult question as we all know a central bank in every country provides the leadership in the formulation of monetary policy, supervision and development of the banks and financial system, and management of the national treasury, including foreign exchange and exchange rate. If one believes Nobel laureate Prof. Milton Friedman the Great Depression of 1930s when the real income of the United States had declined by 33 per cent was due to wrong monetary policy measures at the time.

Nepal’s case is typical in many respects. Its central bank, Nepal Rastra Bank, is more powerful compared to many other central banks of Asia, including, for example, the Reserve Bank of India in policy formulation and implementation. It has been, however, without a full-time governor for the past six months. He has been charged with irregularities in a financial sector reform programme financed by the World Bank. He was suspended from his job when the Commission for the Investigation of Abuse of Authority (CIAA) filed a case against him in the Special Court. Given the seriousness of the problem and its expected implications in the national economy, the Attorney General wrote an unusual request letter to the Special Court to give priority to settle the case of the Governor. The Governor is waiting for the verdict of the Special Court for the past six months. The country is, just to provide one simple example, now facing the shortage of currency notes as no other person other than the Governor has the authority to issue them. The aim of this note is to find the reason for such a problem to avoid the serious economic problems that are slowly emerging in the country.

The problem appears more as a mystery novel rather than a genuine case in financial field. I will provide three examples here to help the readers to derive their own conclusions. They are:

(i) The Governor was not the choice of the current government. He was selected by default, and, according to press reports, was not acceptable to the current Minister of Finance. It is said that he was interested in bringing a ‘yes’ man to the post. He asked the Governor several times to resign from his post (Abhiyan, July 2-8, 2007). He did not realise that Nepal Rastra Bank is an independent institution and is as powerful in the monetary areas as the Ministry of Finance is in the areas assigned to it. The Governor, as expected, did not follow the instruction of the Minister of Finance who asked him again to resign when he was informed, at the Finance Minister’s office, of the CIAA case (Naya Patrika, June 30, 2007). Now the country, as indicated by the Minister of Finance, is in a fiscal mess, and the government is borrowing heavily in the form of overdraft from the Nepal Rastra Bank, again being run without a Governor.

(ii) The Commission for Investigation into Abuse of Authority is now run by two commissioners, one of whom has been appointed as Acting Chief Commissioner who had briefed the PM about the possible legal action against the Governor. (The Himalayan Times, June 20, 2007). It was neither a legal nor an ethical action, specially in the light of personal interest of Acting Chief Commissioner for his confirmation in the post. We did not know about the decision made at the Prime Minister’s quarters but after two days CIAA filed the case. It must also be noted that there were differences of opinions between the two Commissioners.

(iii) The case of the Governor was scheduled to be finalised on November 25, 2007 but was put off due to the absence of one of the judges. He was busy in his daughter’s wedding. This was not the first time that the case was put off. Last time, about a month earlier the final verdict in the case was similarly postponed as the same judge went to Muktinath with his family for a vacation. Has he been provoked or encouraged to do this irresponsible job? Otherwise, a responsible judge could not have done so on his own. The court has fixed the new date again!

How should we analyse the current monetary scenario in the light of these observations? It appears to some simply as a political conspiracy and to others it indicates total lack of a sense of responsibility on the part of the judiciary. These may be true, but for the students of monetary economics, myself included, the current experiences in the monetary areas show Nepal’s lack of political and administrative capability to maintain mono-currency system in the country. It must be recalled that before 1966 Nepal was maintaining dual currency system under which both Indian and Nepali currencies were circulating side by side in the country. Now thanks to the lack of internal discipline in the government, including in the judiciary, we are moving back to the same old system. But this time, the available information suggests that the initiative may come from the side of the people.

Dr. Pant is executive director, Institute for Development Studies (IfDS)