Mr. Anwar Ali, Director of the Middle Eastern Department, is a graduate of the University of the Punjab. He was formerly Joint Secretary in the Ministry of Finance of Pakistan and Director of the Pakistan State Bank and the National Bank.
As an exception, Egypt’s crop yields are among the highest in the world, but the pressure of population on land is considerable.
The ratio of money supply to national income serves as some guide to the extent of monetization achieved in the economies of different countries. The relevant data for 1954, summarized in Table 1, show that the ratio varies from 7 per cent in Ethiopia to 51 per cent in Lebanon.
The investment data for Syria are from the International Bank for Reconstruction and Development, The Economic Development of Syria (Baltimore, 1955); for Turkey, from the United Nations, Department of Economic and Social Affairs, Economic Developments in the Middle East, 1945 to 1954: Supplement to World Economic Report, 1953–54 (New York, 1955); for Egypt, from the National Bank of Egypt, Economic Bulletin, Vol. IX, No. 1 (Cairo, 1956).
Although the exact origin of banking is hidden in antiquity, the earliest evidence traces it to the Middle East. The practices of safekeeping and savings banking flourished in the temples of Babylon as early as 2000 B.C. Furthermore, clay tablets discovered in the ruins of Babylonia indicate that credit instruments used in the ninth century B.C., in the form of promises and orders to pay gold and silver coins, were the forerunners of the promissory notes and bank checks used today. (E. W. Boehmler, R. I. Robinson, F. H. Gane, and L. C. Farwell, Financial Institutions, Homewood, Illinois, revised edition, 1956.) These practices did not, however, develop in the Middle East through the ages, and the only living remnants today of the ancient art of banking are perhaps the sarrafs in Iraq, whose activities now are of only secondary importance.
Banking in the modern sense was introduced in Iran in 1889 with the establishment of 3 foreign banks, 2 of which were British and 1 Russian. The British banks have since ceased operations. The Iranian banking law discriminates against foreign banks.
The Bank Melli Iran operates 158 branches and agencies. The State Bank of Ethiopia has 15 branches.
The Egyptian Government decreed in January 1957 that the British and French banks operating in Egypt should be sequestered and that all banks operating in Egypt should take the form of Egyptian limited liability companies.
The National Bank of Egypt was established in 1898 as an Egyptian company with half of its capital of £1 million subscribed in London. It was empowered to issue banknotes, make advances to the Government, discount bills, and receive deposits. Egyptian Law No. 571 of 1951 changed the de facto position of the National Bank as a central bank into a de jure position. The Bank remained a private company and, while not being called upon to withdraw from commercial banking, was asked not to open small accounts. The Governor of the Bank is appointed by the Minister of Finance from among two nominees of the Bank’s Board of Directors.
A “scheduled” bank is a joint stock bank having a paid-up capital and resources of PRs 500,000 (US$105,042) or more and included in the “second schedule” to the State Bank of Pakistan Order, 1948. Banks with smaller capital and resources are called “nonscheduled” banks.
Prior to September 1, 1956, it was called the National Bank of Iraq. The accounts of the Development Board, whose cash balances have recently been sub-stantially larger than those of the Government, have always been maintained with this Bank.
The banking profession in Lebanon is entirely free and unregulated. Anybody, Lebanese or foreign, can at any time open and operate a bank without any requirements in regard to the legal form of business or minimum capital. Banking transactions are considered as acts of commerce, and persons and corporations carrying them out as merchants.
The quoted ratios are liable to some error since in some countries figures for bank investments are not available separately. However, these investments are known to be small.
Pakistan has under consideration an interesting proposal regarding the establishment of discount houses for expanding the money market. In essence, the scheme visualizes the establishment of discount houses by local firms and moneyed individuals. Commercial banks are to participate in the capital subscription and provide rediscounting facilities at concession rates. The State Bank will, in turn, provide rediscounting facilities to commercial banks. It is stipulated that discount houses should discount bills of trade but not be allowed to accept deposits. The Planning Board has recommended the scheme to the State Bank of Pakistan for further study.
Since this paper was written, interest rates on bank deposits have shown a tendency to rise in Egypt. It is too early to indicate relevant data as interest rates may take some time to stabilize at any particular level.
Of the eight countries under discussion, only three (Egypt, Iraq, and Pakistan) have postal savings banks. The rates of interest on deposits are as low as 2 per cent in Egypt and Pakistan and 3 per cent in Iraq. Outstanding deposits at the end of 1954 were LE 26.4 million in Egypt (against LE 29.5 million in 1948), PRs 329 million in Pakistan, and ID 2.3 million in Iraq. Only Pakistan issues post office savings certificates.
United Nations, Department of Economic and Social Affairs, Economic Developments in the Middle East, 1945 to 1954: Supplement to World Economic Report, 1953–54 (New York, 1955).
Central Bank of the Republic of Turkey, 1931; Bank Melli Iran, 1928; Da Afghanistan Bank, 1941; State Bank of Ethiopia, 1942; State Bank of Pakistan, 1948; National Bank of Iraq, 1949 (now called Central Bank of Iraq); National Bank of Egypt, 1951 (de jure status as central bank).
Until the establishment of the Central Bank, the Council on Money and Credit determined monetary policy. Exchange reserves were kept by the Exchange Office.
The concessions enjoyed by the Bank of Syria and Lebanon (earlier known as the Bank of Syria) date back to the French occupation of Syria and Lebanon. The BSL was granted the right of issue, and it took over the agencies of the Ottoman Bank and the privileges held by that bank in Syria and Lebanon under Turkish rule. The 1939 Conventions (due to expire in 1964) determine the present relationships between the BSL and the Syrian and Lebanese Governments. The BSL has the sole right to issue notes and to receive and hold government deposits. Syria has since terminated the Convention, subject to the payment of an agreed compensation to the BSL.
For details, see footnote 8. Necessary coordination between the National Bank of Egypt and the Ministry of Finance is provided by the Supreme Committee which is presided over by the Minister of Finance and whose decisions are final.
The State Bank of Pakistan took over in July 1948 the functions previously exercised by the Reserve Bank of India—established in 1935. Forty-nine per cent of the State Bank’s capital is privately subscribed.
The banks have the option of depositing their reserves with the Amortization Fund or investing them in government bonds. They have preferred the Fund, since this enables them to earn a higher return.
This has reference to the use of selective credit controls as purely short-term expedients. For the general use of such controls in developing economies, see I.G. Patel, “Selective Credit Controls in Underdeveloped Economies,” Staff Papers, Vol. IV (1954–55), pp. 73–84.