Payment System of Bangladesh

A country´s payment system is the channel through which the central bank passes financial transaction part of its monetary policy. Central banks’ functions in the area of payment systems are very closely related to their functions in the areas of monetary policy and financial stability. Monetary stability supports sound investment and sustainable economic growth, which in turn are conducive to financial stability and support the smooth operation of payment systems.
Well-functioning payment systems ensure the efficient and safe execution of monetary policy operations and facilitate the smooth and homogenous transmission of monetary impulses. The smooth functioning of payment systems is a precondition for users’ confidence in these systems and, ultimately, public confidence in the currency. Central banks would extend their concern toward the safe and efficient use of payment instruments with a view to maintain public confidence in the currency and ensure its smooth circulation. Central banks have a strong interest in promoting safety and improving efficiency in payment systems as part of their overall concern with financial stability. The importance that central banks attach to the stability of financial markets derives from the possibility that financial institutions’ actual or perceived inability to settle their obligations in distressed market conditions could contribute to a loss of confidence and could also have a negative effect on the stability of financial markets and the economy as a whole.
In systemically important payment systems, disruption caused by one participant in the infrastructure can cause disruptions for other participants, propagate financial disturbances and possibly even amplify such disturbances by inducing chain reactions that might contaminate the whole financial system. In such systems, central banks aim mainly to:

• prevent systemic risk, thereby maintaining financial stability;
• promote the efficiency of payment systems and instruments;
• ensure the security of and public trust in the currency as the settlement asset; and
• safeguard the transmission channel for monetary policy.

According to the Section 7A (e) of the Bangladesh Bank Order, 1972; one of the main functions of the Bangladesh Bank is – “to promote, regulate and ensure a secure and efficient payment system” In fulfilling this mandate and considering the importance, Payment Systems Department (PSD) has been formed on 26 July 2012, prior to this it was a section under Department of Currency Management  and Payment Systems.