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  • Part 1 Part 1 Central Bank of Bahrain

    • Chapter 1 Chapter 1 Establishment and Administration of the Central Bank

      • Article (2) Establishment of the Central Bank

        (a) A public corporate person called the "Central Bank of Bahrain" shall be established in accordance with the provisions of this law and shall be administratively and financially independent.
        (b) The Central Bank's headquarters shall be situated in the city of Manama, and it may open branches in Bahrain and abroad, establish subsidiaries and appoint agents and representatives, both inside and outside the Kingdom, in order to assist it achieve any of its objectives stated in this law.
        (c) The Central Bank shall have an independent budget, to be prepared on a commercial basis, and shall conduct its business according to commercial banking principles. It shall also perform its duties without being subject to the government administrative and financial regulations. The Central Bank shall not be subject to the provisions of any other law, which imposes prior controls on its business.
        (d) The role of the National Audit Court in auditing the activities and accounts of the Central Bank shall be limited to the audit of the accounts and the assets of the Central Bank, without any interference, in any form, in its activities or policies. The technical employee assigned by the National Audit court to audit the accounts of the Central Bank must be adequately qualified and specialized in the banking business.

      • Article (3) Objectives of the Central Bank

        The Central Bank shall pursue the following objectives within the framework of the general economic policy of the Kingdom in a manner that enhances and develops the national economy:

        (1) set and implement the monetary, credit and other financial sector policies for the Kingdom.
        (2) provide effective central banking services to the Government and the financial sector of the Kingdom.
        (3) develop the financial sector and enhance confidence therein..
        (4) protect the interests of depositors and the customers of the financial institutions, and enhance the Kingdom's credibility as an international financial centre.

      • Article (4) Duties and Powers of the Central Bank

        The Central Bank shall assume the following duties and powers:

        (1) issue currency in accordance with the provisions of this law.
        (2) liaise with the Ministry of Finance and other relevant official bodies for the purpose of drawing and implementing the appropriate monetary policies to achieve the Kingdom's general economic goals, maintain the stability of the Bahraini currency and the monetary system.
        (3) take appropriate measures to counter adverse local, regional or international economic conditions.
        (4) regulate, develop and license the Services stated in Article 39 of this law, and exercise regulatory control over institutions that provide such services;
        (5) act as banker to the Government within the limits set out in this law.
        (6) advice the Government on issues pertaining to financial and economic affairs.
        (7) manage the Government's reserves of gold and foreign currency.
        (8) to act, in coordination with the Ministry of Finance, as the financial agent for the Government at the International Monetary Fund and the International Bank for Reconstruction and Development as well as other Arab and international monetary institutions and funds, and perform all Government dealings with these organizations.
        (9) facilitate and encourage innovation in the financial services industry.
        (10) safeguard the legitimate interests of licensees' customers against the risks associated with the financial services industry.
        (11) perform any other duties as stipulated in this law.

      • Article (5) The Board of Directors

        (a) The Central Bank shall have a Board of Directors formed of seven members, including a representative of the Ministry of Finance. Members of the Board shall be appointed by a Royal Decree for a renewable term of four years. The Decree appointing the members shall name the Chairman and the Vice chairman of the Board.
        (b) The remunerations of the Chairman and the members of the Board shall be determined by a Decree.

      • Article (6) Conditions of Membership

        A member of the Board shall satisfy the following conditions:

        (1) He shall be a Bahraini national.
        (2) He shall be entitled to fully exercise his civil and political rights.
        (3) He shall be experienced in the financial services industry.
        (4) He shall not have any conviction of a crime involving dishonesty.
        (5) He shall not be a holder of more than 5% of the capital of, or voting rights in, any Licencee.
        (6) He shall not hold a position with any Licencee.
        (7) He shall not have been declared bankrupt.

      • Article (7) Meetings and Proceedings of the Board

        (a) The Board shall meet at least four times every year by invitation from the Chairman. The Board meeting shall have a quorum of at least four members, including the Chairman or the Vice Chairman.
        (b) Resolutions of the Council shall be adopted by an absolute majority of votes of the members present. In case of a tie, the Chairman shall have the casting vote.
        (c) Any member who has a personal interest in any transaction of which the Central Bank is a party, shall declare such an interest and shall not attend the meeting in which such transaction is discussed.
        (d) The Board may seek the assistance of experts and shall invite to its meetings, for consultation without voting rights, any persons whose opinion it wishes to hear on a particular matter.

      • Article (8) The Powers of the Board

        The Board shall supervise the affairs of the Central Bank, lay down its policies and shall exercise all powers necessary to achieve the objectives of the Central Bank as set out in the provisions of this law.

        The Board shall, in particular, carry out the following:

        (1) Draw the Central Bank's monetary, credit and investment policies, and all other policies relating to the financial sector.
        (2) Oversee the business of the Central Bank and ensure that all duties stipulated in this law are carried out effectively.
        (3) Determine matters relating to the issue and recall of currency.
        (4) Approve government borrowing in exceptional circumstances according to the provisions of this law.
        (5) Approve the annual budget of the Central Bank and any amendments thereto.
        (6) Approve the final accounts of the Central Bank.
        (7) Approve the annual report of the Central Bank's activity.
        (8) Issue resolutions and regulations stipulated in this law.
        (9) Approve the internal regulations of the Central Bank.
        (10) Approve the financial and administrative regulations regarding the Central Bank's personnel. In doing so it shall not adhere to the rules of the civil service.
        (11) Deal with such other matters that may fall within the powers of the Board under this law.

      • Article (9) Termination of Board Membership

        (a) Membership of the Board shall terminate automatically upon the expiry of its specified term or upon the death or resignation of a member.
        (b) Membership may, upon recommendation of the Board, be terminated, prior to the expiry of the term thereof, if a member:
        1. has seriously neglected his duties,
        2. has violated any of the membership conditions,
        3. is no longer capable of performing his duties for any reason.
        4. failed to attend three consecutive Board meetings without a permission or an acceptable excuse.

      • Article (10) Governor and Deputy Governor

        (a) The Central Bank shall have a Governor, of ministerial rank, who shall be responsible for implementing its policies and assume the day-to-day management of its affairs. The Governor shall be directly accountable to the Board, who shall determine his monthly remunerations.
        (b) The Central Bank shall have one or more Deputy Governors, of undersecretary rank, to assist the Governor in the management of the Central Bank's affairs and assume responsibilities on a temporary basis if the Governor is absent or if his position becomes vacant. The Board shall determine the monthly remunerations of the Deputy Governor.
        (c) The Governor is appointed by a Royal Decree for a renewable 5-year term of office on the recommendation of the Board.
        (d) The Deputy Governor shall be appointed by a Royal Decree upon a recommendation of the Board.
        (e) The Governor shall be the legal representative of the Central Bank before the law and others, and shall have the power to sign all documents, contract and papers on its behalf. He shall be responsible for the implementation of this law, the Central Bank's regulations and the Board's resolutions.

        The Governor may delegate, in writing, some of his powers to his Deputy or other senior staff.
        (f) The Governor shall assume the duties and powers of the Minister of Commerce stated in the Legislative Decree No. 3 of 1987 with respect to Compulsory Insurance for the Civil Liability of Car Accidents, amended by the Legislative Decree No. 7 of 1996, and such powers as stipulated in Article (197) of the Commercial Companies Law issued by Legislative Decree No. (21) of 2001, regarding the dissolution of the board of directors of licencees.
        (g) The Governor shall appoint the officials of the Central Bank in accordance with the financial and administrative regulations related to the staff of the Central Bank and shall observe the Bank's requirements of effective operation.
        (h) The Governor and the Deputy Governor shall devote their time to working at the Central Bank. None of them shall, during his tenure of office, be a board member of any licencee or take, with or without payment, any position or employment with others.

        As an exception of the above, the Governor and the Deputy Governor may participate in committees and boards of directors of institutions and organizations formed or supervised by the Government or international financial institutions and organizations.

    • Chapter 2 Chapter 2 Capital and General Reserve

      • Article (11) Capital

        (a) The authorized capital of the Central Bank shall be Bahraini Dinars Five hundred million (BD 500,000,000).
        (b) The paid up capital of the Central Bank shall be Bahraini Dinars Two hundred million (BD 200,000,000).
        (c) The authorized capital and the paid up capital may be increased by a royal decree.
        (d) The Government shall pay the capital of the Central Bank in full and shall be the sole owner thereof.

      • Article (12) General Reserve

        (a) The Central Bank shall maintain on its books an account designated as the "General Reserve" which shall be credited with percentages of its net profits at the end of each financial year in the following order:
        1. 100% of the Bank's net profit until the amount of the general reserve reaches 25% of the authorized capital of the Central Bank.
        2. 50% of the net profit until the amount of the general reserve is equal to the authorized capital of the Central Bank.
        3. 25% of the net profit until the amount of the general reserve is double the amount of the authorized capital of the Central Bank.
        (b) Any net profit remaining after such allocation in accordance with the preceding paragraph and Article 21 of this law, shall be transferred to the Kingdom's general account within three months of the date of approval of the Bank's final accounts.
        (c) The Board may decide at any time to increase the amount of the general reserve over the amount stipulated in this Article.
        (d) In implementing the rules of this Article and Article (21) of this law, the term "Net Profits" means the net profits of the Bank in a specific financial year according to the approved final accounts.
        (e) The Board may approve payments from the general reserve at such times and for such purposes as it determines.

    • Chapter 3 Chapter 3 Currency

      • Article (13) Unit of Currency

        The standard unit of currency in the Kingdom is the Bahraini Dinar.

        The Dinar is divided into 1,000 fils.

      • Article (14) Currency Issue

        (a) The Central Bank is the exclusive authority to issue currency in the Kingdom.

        No other person shall issue banknotes, coins, bills or warrants, payable to bearer upon demand, that have the appearance of currency or may be interpreted as currency.
        (b) Currency issued by the Central Bank shall be in such denominations, forms, specifications and designs as approved by the Board and published in the official Gazette.
        (c) Currency notes issued by the Central Bank shall be legal tender for the full value thereof. Coins shall be legal tender for their nominal value up to five (5) Bahraini Dinars. However, the Bank shall accept all currencies tendered without limitation.
        (d) The Central Bank shall reissue and replace currency without levying any fees or commission.

      • Article (15) Production of Notes and Coins

        (a) The Central Bank shall be solely responsible for the printing of bank notes and minting coins and all matters incidental to the production of the Central Bank's notes and coins.
        (b) The Central Bank shall make the necessary arrangements for the storage of stocks of unissued and returned currency, for the safekeeping of the dies and plates of issued currency and for the destruction of currency and of dies and plates of currency no longer in circulation.

      • Article (16) Withdrawal of Currency From Circulation

        (a) The Central Bank may withdraw any currency it has issued against payment of the face value thereof by publishing a notice to that effect in the Official Gazette and two local daily newspapers, one published in English and the other in Arabic language.
        (b) A notice for withdrawal of currency shall specify the following:
        1. The currency to be withdrawn.
        2. A period of a minimum of thirty days during which the relevant currency can be surrendered.
        3. Any additional conditions regarding such withdrawal.
        (c) After the end of the Surrender Period any currency to which the notice applies shall cease to be legal tender.
        (d) Without prejudice to the preceding paragraph, the Central Bank may, in a notice published under paragraph (a) of this Article, allow the payment of the face value of such withdrawn currency at its discretion.

      • Article (17) Redemption of Currency in Circulation

        (a) The Central Bank shall redeem currency in circulation without levying any charge or commission.
        (b) The Central Bank may issue regulations specifying the conditions for redemption of damaged, torn or mutilated currency and the recovery of the face value thereof in whole or in part.
        (c) No person shall have the right to redeem or recover from the Central Bank the value of lost or stolen currency.

    • Chapter 4 Chapter 4 Parity-Rate and Foreign Reserve and Exchange Transactions

      • Article (18) Parity Rate

        (a) Subject to the obligations of the Kingdom under any international agreement of which it is a party, the Board may adopt a resolution to fix or change the parity-rate of the Bahraini Dinar against any convertible currency or any recognized standard of an international unit of currency.
        (b) Any change in the parity-rate of the Bahraini Dinar shall be published by the Central Bank in the Official Gazette and in one English and one Arabic local daily newspaper published in the Kingdom.
        (c) The Central Bank may use whatever means deemed appropriate for the purpose of maintaining the parity-rate including buying and selling of gold or convertible currencies.

      • Article (19) Foreign Reserve

        (a) The Central Bank shall, upon the terms and conditions set by a resolution issued by the Board, maintain a foreign reserve comprised of all or any of the following assets:
        1. Currencies and gold bullion.
        2. Foreign convertible currencies, or balances of convertible currencies in foreign banks.
        3. Any internationally recognized assets including the gold part of the Kingdom's share in the International Monetary Fund and the Special Drawing Rights allocated to the Kingdom in the International Monetary Fund;
        4. Bills of Exchange and Promissory Notes payable outside the Kingdom in convertible currencies;
        5. Treasury Notes issued by foreign governments and payable in convertible currencies
        6. Bonds specified by the Board, issued or guaranteed by foreign governments or international financial institutions, provided that they are payable in convertible currencies.
        7. Other Bonds as the Board shall determine, issued by a foreign entity provided that they are negotiable in international financial markets and payable in convertible currencies.
        8. Any other assets valuated in foreign currencies approved by the Board.
        (b) The amount of foreign exchange reserve permanently maintained by the Central Bank shall not be less than 100% of the value of the currency in circulation.
        (c) In exceptional circumstances, the minimum amount of the Foreign Exchange Reserve may be changed by a resolution issued by the Board, provided that such minimum shall not be less than 75% of the value of the currency in circulation.

      • Article (20) Foreign Exchange Transactions

        (a) The Central Bank may buy, sell and deal in gold coins and bullion, foreign currencies, treasury notes and other bonds and to open and maintain accounts abroad, and to act as an agent or correspondent for foreign central banks or similar institutions as well as for foreign governments and international financial institutions.
        (b) The Central Bank shall carry out any of the transactions referred to in the preceding paragraph in accordance with such terms and conditions as the Board may determine.

      • Article (21) Contingency Reserve

        (a) A percentage of the net profits of the Central Bank determined by the Board shall be credited at the end of each financial year to a special account to be entitled the "Contingency Reserve".
        (b) The sums standing in the credit of the Contingency Reserve can be used for such purposes that serve the objectives of the Central Bank as determined by the Board from time to time.

      • Article (22) Revaluation Reserve

        (a) All profits resulting from the revaluation of the Central Bank's assets or liabilities in gold or foreign currencies as a result of any change in the parity-rate of the Bahraini Dinar or the rate of exchange of the Central Bank's assets of such currencies, shall be entered in a special account to be entitled "Revaluation Reserve Account".
        (b) Losses resulting from any change in the value of the Central Bank's assets or liabilities of gold or foreign currencies shall be covered from the credit balance of the Revaluation Reserve Account. If such balance is insufficient to cover such losses, the Government may issue bonds in favour of the Central Bank for the value of the deficit and such bonds shall be interest-free and non-transferable.
        (c) The Central Bank shall use any credit balance in the Revaluation Reserve Account at the end of each financial year to redeem any bonds it has issued in accordance with the provisions of the preceding paragraph.
        (d) The revaluation under this Article shall be carried out at least once every year at such time as the Board may determine.
        (e) Any entries in the assets or liabilities of the Revaluation Account shall only be made in accordance with this Article.

    • Chapter 5 Chapter 5 Relations with the Government and International Monetary Institutions

      • Article (23) Financial Agent of the Government

        (a) The Central Bank shall be the banker to the Government and shall act as its financial agent. It is the place where the government deposits its funds.
        (b) The Central Bank may provide the services referred to in the previous paragraph to Government organizations and agencies and other public bodies.
        (c) As an exception from the provisions of paragraph (a) of this Article, the Government may open and maintain accounts with any commercial bank and utilize the services of such banks under such terms and conditions as shall be agreed upon between the Minister and the Central Bank.
        (d) The Central Bank shall receive and disburse government funds and shall keep the relevant accounts without collecting any charges or interest for such services. The Central Bank shall not pay any interest on the Bahraini Dinars credit balances of the Government.

      • Article (24) Administration of National Debt

        (a) The Central Bank shall, in consultation with the Minister, administer the National Debt through any of the following means:
        1. Procedures for the issue of Government Debt Instruments.
        2. Redemption of Government Debt Instruments in accordance with the terms thereof.
        3. Interest payment procedure for Government Debt Instruments.

      • Article (25) Loans to Government

        (a) The Central Bank may advance loans to the government in exceptional circumstances to cover any seasonal or unforeseen deficit in the National Budget or to provide liquidity in emergencies on the following conditions:
        1. Loans advanced to the government shall be repaid within three months immediately following the end of the fiscal year during which such loans were granted.
        2. The aggregate of loans shall not exceed 25% of the approved National Budget of the Kingdom for the fiscal year during which such loans were granted.
        3. Loans shall be made on such terms and conditions as the Board may determine.
        (b) The Central Bank may, subject to the Minister's approval, grant loans and credit facilities to government agencies or public bodies on the terms and conditions stipulated in the preceding paragraph.

      • Article (26) Public Debt Instruments Transactions

        The Central Bank may buy, sell and deal in government debt instruments offered for public subscription if such instruments are not fully subscribed.

      • Article (27) Relations with International Financial Institutions

        The Central Bank shall be the financial agent, custodian and agency through which all the operations with the international financial institutions, of which the Kingdom is a member, shall be transacted.

      • Article (28) Tax and Fees Exemption

        The Central Bank's capital, property, transactions and profits shall be exempt from all taxes and fees.

    • Chapter 6 Chapter 6 Central Bank's Transactions and Investments

      • Article (29) Permitted Transactions

        (a) The Central Bank may carry out any of the following transactions with financial institutions:
        1. Buy, sell, discount and re-discount bills of exchange and promissory notes.
        2. Buy, sell and otherwise in the government debt instruments.
        3. Buy, sell and otherwise deal in the assets mentioned in Article 19 (a) of this law.
        4. Grant credit facilities in the ordinary course of business and also the exceptional circumstances for the purpose of assisting financial institutions overcome any serious shortage of liquid money or any risk to their financial situation.
        5. Borrow money or any other assets.
        6. Open and maintain accounts for financial institutions and accept their deposits upon the terms and conditions to be determined by the Governor.
        (b) The Central Bank may perform the following:
        1. Act as agent or correspondent bank for foreign central banks, similar monetary institutions, foreign governments or their bodies or international financial institutions.
        2. Open accounts to any other person, except those mentioned in the preceding item, upon the approval of the Board in order to encourage participating in the financial activity of the Bank.
        3. Extend loans to its employees upon the terms and conditions stated in the regulations issued by the Board
        4. Do all such other acts that are ancillary, incidental or consequential to any of the transactions mentioned in this Article and as determined by the Central Bank.

      • Article (30) Investments

        The Central Bank shall invest its capital and reserves according to the asset investment policies set by the Board.
        The Central Bank may appoint one or more fund managers to administer its investments.

      • Article (31) Prohibited Transactions

        Except as otherwise provided for in this law, the Central Bank shall not:

        (1) Engage in trade or participate in any financial, commercial, agricultural, industrial or other undertaking except for such activities as the Central Bank may deem necessary to achieve its objectives.
        (2) Purchase, or retain title to, real estate except for the conduct of the Central Bank's business and for the housing of its employees.
        (3) Advance unsecured loans.
        (4) Advance loans upon security other than that provided for under this law. However, if the ability of a debtor to repay any debt due to the Central Bank is doubtful, the Central Bank may accept movable assets, real estate or other property as security for payment. The Central Bank shall sell such property, possessed as a result of the debtor's failure to pay the debt, as soon as market conditions permit.
        (5) Accept shares or convertible public debt instruments as collateral.

      • Article (32) Other Functions of the Central Bank

        (a) The Central Bank may establish one or more clearinghouses and may assign the management thereof to a third party.
        (b) The Central Bank may issue regulations regarding the settlement and clearing systems of cheques and other securities.
        (c) The Central Bank may:
        (1) set up a currency museum at such a location as the Board may determine.
        (2) Organize or participate in conferences, seminars or other public events in and outside the Kingdom in order to develop the financial sector and the financial service industry.
        (3) Issue and sell memorial coins and medals.

    • Chapter 7 Chapter 7 Accounts of the Central Bank

      • Article (33) Financial Year

        The financial year of the Central Bank shall be the same as the Government's financial year.

      • Article (34) The Budget

        (a) The Central Bank shall have an independent budget and shall keep audited accounts for each financial year.
        (b) The Governor shall prepare a budget for each financial year and submit it to the Board for approval prior to the commencement of the financial year.
        (c) The Board shall approve the budget before the commencement of the new financial year. If the approval of the budget is delayed beyond the commencement of the financial year, the Central Bank shall operate within the previous year's budget until the new budget has been approved.

      • Article (35) Auditing of Accounts

        (a) An external auditor shall audit The Central Bank's accounts. The appointment and fees of such auditor shall be decided by the Board in coordination with the National Audit Court.
        (b) The auditor shall prepare a report on the final accounts.
        (c) The Central Bank shall provide the external auditor with all necessary information and facilities to enable him to prepare the report referred to in paragraph (b) above.
        (d) Save as provided for in this Article, the Central Bank's accounts shall not be subject to any other external audit.

      • Article (36) Reports and Approval of Final Accounts

        (a) The Governor shall, within three months immediately following the end of the financial year, present to the Board a report on the operations of the Central Bank during the preceding financial year, together with a copy of the audited final accounts of the Central Bank and the external auditor's report.
        (b) The Central Bank shall submit copies of the annual report of the Central Bank, the final audited accounts after being approved by the Board, and the external auditor's report to the Council of Ministers
        (c) The Bank shall submit copies of the external auditor's report and the approved final accounts, to the National Audit Court.
        (d) The Central Bank's final accounts, approved by the Board, and the auditor's report shall be published in the Official Gazette.

    • Chapter 8 Chapter 8 Regulations, Resolutions, Directives and Notices

      • Article (37) Regulations and Resolutions

        (a) The Board shall issue Regulations to organize the Central Bank's bids and purchases. Such regulations shall ensure transparency, safeguard the Central Bank's money, enhance honesty and competition based on equal opportunities, and encourage participation in bids and purchases of the Central Bank. In this regard the Central Bank shall not be subject to the law organizing government bids and purchases.
        (b) The Governor shall issue the necessary regulations and resolutions for the implementation of this law, except such regulations and resolutions, which the law clearly states that they are the responsibility of the Board.
        (c) Such regulations and resolutions shall only be valid after they are published in the Official Gazette and may also be published through any other media, including electronic means, to ensure proper circulation.
        (d) Drafts regulations and resolutions shall be publicized through any suitable means to ensure that the addressees are aware of such regulations and are able to comment on them. Such circulars shall include reasonable deadlines for receiving such comments.

        Regulations and resolutions issued under necessity conditions, as determined by the Central Bank, are excluded.
        (e) Before issuing any proposed regulations and resolutions, the Central Bank must review and consider any comments made on them.

      • Article (38) Directives

        (a) The Governor shall issue the necessary directives to ensure the implementation of this Law, any regulations issued in accordance to this Law and the achievement of the objectives of the Central Bank. Such directives shall be legally supported and the intended addressees shall be identified.
        (b) The Governor may issue directives that aim to facilitate the understanding and implementation of this law and any regulations thereof. He may also issue directives regarding other matters, as he deems appropriate to serve the objectives of the Central Bank.
        (c) The directives shall be circulated through the means approved by the Governor. Once circulated to the intended addressees, the directives become binding.