Central banks tend to be poorly understood entities at times, especially by those whose job it is to oversee them, and so it is with the State Bank of Pakistan (SBP) and parliament.

For the last four times that the SBP’s governance structure has come up for a vote in the National Assembly or the Senate, the government’s bill has passed with no discussion whatsoever. We do not have a problem with the bill passed by the National Assembly this time around, but we shudder to think what bills the government might be able to pass simply by putting the label “State Bank of Pakistan” on them. On to the bill itself, we have few complaints.

The 2015 State Bank of Pakistan (Amendment) Bill is designed to give the SBP real autonomy on matters of monetary policy, and to codify into law what is already SBP practice when it comes to sanctioning banks that do not behave and dealing with banks that fail.

Monetary policy independence is based on the following premise. Governments, unlike other borrowers, have the ability to print the money they need to pay back their loans, which can be a tempting proposition, but by virtue of the fact that printing money causes inflation, it is tantamount to robbing future generations to pay the bills for the present’s profligate spending. The only check on this is an autonomous central bank that can impose punishing borrowing costs and limit governments from printing money, thus inculcating financial discipline. This bill grants much-needed independence to the SBP’s monetary policy decisions. We are also glad that legal cover was given to deposit insurance, which should help improve the confidence of citizens in the banking system. Now, at least small depositors will be assured that their deposits are backed by the government even if their bank fails, which should allow smaller banks to compete more effectively against larger banks, thus creating a healthier financial market that benefits customers. We believe that this bill will largely benefit the economy, though the lack of debate was very disappointing.

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