COUNTRY BACKGROUND - Gross National Happiness Commission

Monetary Aims and Policies for 7FYPMonetary Aims and Policies for 7FYP
Fiscal and Monetary Policy
8.24 The RGOB recognises the vital role that the financial system must play in bringing about the development
of the economy. The most important requirement is that people should have confidence in the currency and the
financial system. To ensure this, the Royal Government and the Royal Monetary Authority will:
(a) maintain the parity of the Ngultrum with the Indian rupee;
(b) take a cautious approach towards the expansion of the money supply, recognising that too rapid an
expansion could create inflationary pressures and reduce people's willingness to hold Ngultrum;
(c) ensure that overseas borrowing is carefully monitored and does not exceed the comfortable debt
service capacity of the economy;
(d) ensure that the domestically-financed budget deficit is kept within reasonable bounds (partly so as not
to crowd out private sector investment), and financed in a non-inflationary manner;
(e) apply foreign-exchange restrictions in a transparent and liberal manner.
8.25 In order to make the financial system more dynamic and improve efficiency, the RGOB and the RMA will:
(a) restructure and reform the existing institutions and establish new institutions to bring about greater
competition and thus enhance efficiency in the financial sector;
(b) establish a greater supervisory role for the RMA in order to enable it to monitor the operations of
financial institutions and their soundness. In this regard, the RMA has already established a
Supervision Division which will be responsible for monitoring the operations of financial institutions
on a continuous basis;
(c) enact a Financial Institutions Act to establish a legal framework for the licensing, operations and
regulations to be observed by financial institutions and enable the RMA to reform these institutions
where necessary. The draft of the legislation had been prepared by the end of the 6FYP with
Technical Assistance from the IMF and the legislation will be enacted early in the 7FYP;
(d) develop a capital market to provide low cost, long term financing to the private sector. As a first step,
the Government has approved the establishment of an "Over the Counter" (OTC) share trading
facility. Technical Assistance for this project has been requested from the Asian Development Bank;
(e) develop a money market to deal primarily in central bank securities and treasury bills. As a means of
obtaining long term, non-inflationary resources, the Government will introduce treasury bills early in
the 7FYP. These together with RMA securities, also to be introduced, will provide the RMA with
effective monetary policy instruments.
(f) the RMA will establish a small coin mint.
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