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Bhutan Banking and Credit
The Royal Monetary Authority, since its establishment
in 1982,
has served as the central bank of Bhutan and maintained
its
headquarters in Thimphu. The authority was responsible for
issuing
currency, implementing monetary policy, coordinating
financial
institution activities, and holding the government's
foreignexchange earnings. Among its initial duties was the
administration
of financial assistance to rural development, a duty later
delegated to the Bhutan Development Finance Corporation
when it was
founded in 1988.
The Bank of Bhutan, the nation's commercial bank, was
established in 1968 as a joint venture with the Chartered
Bank of
India, which owned 25 percent of the bank. In 1970 the
State Bank
of India took over the Bhutanese assets controlled by the
Chartered
Bank of India. Since its establishment, the Bank of
Bhutan's board
of directors, has been composed of key officials from the
economic
ministries and departments and two officials from the
Indian banks.
The bank was restructured in 1971. To ensure that it would
have
sufficient funds at its disposal, government departments
were
required to deposit all of their accounts with the
government-run
bank until 1982, when the Royal Monetary Authority was
established.
Since 1982 the Bank of Bhutan has served as the retail
banking
agent for the Royal Monetary Authority. The bank's
principal office
was in Phuntsholing; in 1991 there were twenty-six branch
offices
throughout the country. The Bank of Bhutan was able to
give
relatively large loans for capital programs, such as
irrigation
projects in the south-central region. Among its retail
banking
activities was the issuance of rupee-denomination
travelers'
cheques; this activity was started in 1974.
The Bhutan Development Finance Corporation, upon its
establishment in 1988, took over the administration of
rural
financial assistance from the Royal Monetary Authority.
Loans were
granted for improving farmlands, acquiring livestock, and
meeting
short-term, seasonal requirements. At least some of the
funding for
the corporation came from the Asian Development Bank,
including an
initial US$2.5 million loan in 1988 for the expansion of
small- and
medium-sized, private-sector industrial development. By
1991 the
corporation had been privatized.
Nonbank financial institutions also were set up as part
of the
economic modernization process. Insurance was offered by
the Royal
Insurance Corporation of Bhutan, which was established in
1975 with
its headquarters in Phuntsholing. Starting in 1980,
individuals
could invest their savings in the newly established Unit
Trust of
Bhutan. The trust, with its main office in Phuntsholing,
channeled
invested funds, for which it issued shares called units,
into
industrial and commercial development. The Government
Employees'
Provident Fund, established in 1986; the Bhutan
Development Finance
Corporation; and other nonbank institutions were small and
constrained by the rudimentary use of money in the
economy.
Data as of September 1991
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