politics
Royal Monetary Authority of Bhutan Act, 2010
The 2010 statute that re-established the Royal Monetary Authority as an autonomous central bank with formal powers over price stability, currency issuance, banking regulation and the ngultrum-rupee peg.
The Royal Monetary Authority of Bhutan Act, 2010 is the governing statute of the Royal Monetary Authority of Bhutan (RMA), Bhutan's central bank. The Act was passed by Parliament in June 2010 and replaced the Royal Monetary Authority Act of 1982, elevating the RMA to an autonomous central bank with codified powers over monetary policy, currency issuance and the regulation of banks and other financial institutions.[1][2]
The Act gives statutory form to functions the RMA had performed in practice since its founding in 1982 and adds new mandates required by Article 14 of the Constitution, including formal independence in monetary policy and a clearer division between fiscal and monetary authority. With the Act's enactment and the appointment of Bhutan's first Governor in August 2010, the RMA's status was elevated from a quasi-monetary agency to that of a full central bank.[2]
The Act underpins Bhutan's exchange-rate-targeting monetary policy framework, which pegs the ngultrum at par to the Indian rupee, and provides the legal basis for prudential regulation of commercial banks, microfinance institutions, insurers and other financial service providers operating in Bhutan.[2][3]
Background
The RMA was established under the Royal Monetary Authority Act of 1982, four years after Bhutan introduced its own currency, the ngultrum, in 1974. The 1982 Act gave the RMA limited authority over currency and exchange management but did not provide a clear central bank statute. After the adoption of the Constitution in 2008, which empowered Parliament to set the legal framework for monetary policy and the central bank, the Government drafted a replacement statute aligned with international central banking practice.[1][2]
The drafting drew on technical assistance from the International Monetary Fund and used central bank legislation in India, Singapore and other comparable jurisdictions as reference points. The 2010 Act was tabled in Parliament's Fifth Session and passed by both Houses before assent.[3]
Key provisions
The Act establishes the RMA as a body corporate with perpetual succession and the power to sue and be sued in its own name. It vests the Authority with the sole right to issue ngultrum currency notes and coins, and Section 9(a) provides that the ngultrum is the sole official legal tender, although Indian rupees circulate freely under the par-rate peg.[2]
The Act sets out the RMA's primary objectives — to formulate and implement monetary policy with the aim of achieving and maintaining price stability; to ensure the safety and soundness of the financial system; to act as banker, fiscal agent and financial adviser to the Government; and to manage Bhutan's external reserves and exchange-rate arrangements. It expressly limits credit by the RMA to the Government and prescribes ceilings on advances and overdrafts to constrain monetisation of the deficit.[2]
Governance is vested in a Board of Directors comprising the Governor as chairperson, two Deputy Governors and external directors appointed by the Government. The Governor is appointed for a five-year term renewable once. The Act prescribes the Board's powers, the procedure for removal, and conflict-of-interest restrictions on Board members.[2]
The RMA's supervisory powers extend to all financial institutions licensed under the Financial Services Act of 2011 — commercial banks, non-bank deposit takers, microfinance institutions, insurance companies, credit guarantee schemes and capital-market intermediaries. It can issue prudential regulations on capital adequacy, liquidity, asset classification and loan loss provisioning, and it has powers of inspection, supervisory direction, sanction and revocation of licences.[2][3]
Anti-money-laundering and countering-financing-of-terrorism supervision is also vested in the RMA. The Financial Intelligence Unit, originally housed at the RMA, was upgraded to a full department in July 2018 following enactment of the AML/CFT Act, 2018.[4]
Implementing institutions
The RMA itself is the principal implementing institution. The Ministry of Finance is the Government's counterparty under the Act for fiscal-monetary coordination, debt management and reserve operations. The Reserve Bank of India operates a standing currency-swap arrangement with the RMA to support the rupee peg, and the two institutions cooperate on cross-border banking and payments. The Financial Intelligence Unit, the Office of the Attorney General and the Office of the Anti-Corruption Commission are all supervisory or enforcement counterparts under the Act and its subsidiary regulations.[2][4]
Amendments and reform
The Act has been supplemented rather than amended in major ways. The Financial Services Act of 2011 elaborated the licensing and prudential framework for individual classes of financial institution. The AML/CFT Act of 2018 carved out the FIU's enhanced powers. Subsidiary RMA regulations have been issued on capital adequacy, liquidity, branchless banking, microfinance, foreign exchange management and digital payments.[3][4]
An IMF technical assistance report in 2019 recommended further refinements to the RMA's macro-prudential framework, governance arrangements and financial-sector safety net. As of 2026, no comprehensive amendment of the parent 2010 Act has been enacted.[3]
Implementation and impact
The Act has stabilised the legal foundations of Bhutan's monetary system but has not insulated the country from periodic external pressures. The most acute episode came in 2012, when a shortage of Indian rupees emerged because of structural import financing imbalances and triggered a credit freeze. The RMA was criticised for slow recognition of the imbalance and for procyclical policies in the run-up. The episode prompted a tightening of credit limits, restrictions on rupee transfers and a series of macroprudential measures by the RMA over the following years.[2][3]
The Authority has been faulted in successive Royal Audit reports and IMF assessments for limited research capacity, weak data on the informal economy and uneven enforcement of prudential rules on state-linked banks. Critics have also questioned the practical independence of monetary policy under a rigid exchange-rate peg, where domestic interest rates closely track Indian rates regardless of Bhutan's domestic conditions.[3]
References
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