making Nepal independent in foreign currency exchange. Before 1956, Nepal’s foreign exchange reserves were held in Indian banks. As of now, Nepal’s foreign exchange reserves are held by the NRB itself. Only a certain percentage of foreign exchange reserves is held by other banks. In 1974, NRB became the founding member Asian Clearing Union (ACU), with headquarters in Tehran, Iran. However this payment system does perform settlement for payment between Nepal and India. The financial sector reform based on the Financial Sector Strategy Paper that Government of Nepal publicly announced on 22 November 2000 enacted Nepal Rastra Bank Act, 2002 under which the bank is running till date. The act states its primary responsibility as “to take necessary decisions with regard to the denominations of bank notes and coins, the figures, size, metal, materials for printing notes and other materials, and to frame appropriate policies with regard to their issue. Under this act, NRB formulated its first monetary policy in the fiscal year 2002/03, 46 years after its establishment. The central bank has been formulating monetary policy every year since then to help in the implementation of the government’s annual policy and budget plan and to maintain financial stability. Objectives of Nepal Rastra Bank [NRB] As per the Nepal Rastra Bank Act, 2002 Section 4(1) the objectives of the Bank shall be as follows:- (a) To formulate necessary monetary and foreign exchange policies in order to maintain the stability of price and balance of payment for economic stability and sustainable development of economy, and manage it, (b) To increase the access of the financial service and increase the public confidence towards the banking and financial system by maintaining stability of the banking and financial sectors, (c) To develop a secure, healthy and efficient system of payment; Functions of Nepal Rastra Bank (a) To issue bank notes and coins; (b) To formulate necessary monetary policies in order to maintain price stability and to implement or cause to implement them, (c) To formulate foreign exchange policies and to implement or cause to implement them, (d) To determine the system of foreign exchange rate, (e) To manage and operate foreign exchange reserve, (f) To issue license to commercial banks and financial institutions to carry on banking and financial business and to regulate, inspect, supervise and monitor such transactions, (g) To act as a banker, advisor and financial agent of Government of Nepal, (h)