In accordance with the Royal Monetary Authority Act of Bhutan 2010, the RMA’s Core and Subsidiary functions, can be summarized as follows:

a) Monetary Policy: Achievement and Maintenance of Price Stability

The primary function or objective of the RMA, as stipulated in the RMA Act of Bhutan 2010, is to formulate and implement monetary policy with a view to achieving and maintaining price and financial stability (Chapter II, Section 7). In the pursuit of price stability, the cornerstone of Bhutan’s monetary policy is that of Exchange Rate Targeting. Since the introduction of the Ngultrum in 1974, the Ngultrum has been pegged at par to the Indian Rupee which circulates freely in Bhutan and serves as legal tender. Monetary Policy, which is aimed at achieving and maintain price stability, is confined to the support of the Peg, which involves making available sufficient Rupee on demand, providing at least 100% reserve backing for all Ngultrum issued, the management of overall banking sector liquidity to smooth out sharp and undesirable liquidity fluctuations in the system, together with additional confidence-building measures for the Ngultrum, i.e., credible RMA and Government policies.

While ensuring the sustainability of the exchange rate arrangement, the Monetary Authority is required to play an important role in monetary and credit Management. With the elimination of quantitative credit controls, it has developed and increasingly relied upon more indirect instruments of monetary management. In particular, for the purpose of liquidity management in the banking system, the RMA has resorted to variations in reserve requirements, the sale of RGOB Treasury Bills, and sale of Foreign Exchange to the banks. Through the sale of the short-term Treasury Bills, the RMA also aims to establish a modest money market and set a frame of reference for interest rates.

Maintenance of a fixed exchange rate regime has been beneficial for Bhutan. Pursuing Exchange Rate Targeting as a policy measure has not only contributed to low volatility in the bilateral real exchange rate with India, it has greatly facilitated smooth trade integration between India and Bhutan, while safeguarding competitiveness, which is critical to avoid unwarranted pressures on net reserves. Moreover, the peg arrangement has been instrumental in maintaining confidence in the local currency, while tying Bhutan to relatively stable economic and monetary conditions in India.

In accordance with the RMA Act of Bhutan 2010 (Chapter II, Section 10), a Monetary Policy Statement shall be issued by the RMA on an annual basis, with an overview of monetary and financial developments, including recent policy measures and prospects for monetary and financial conditions. Please see RMA Publications on the RMA website for the latest Monetary Policy Statement. The Royal Monetary Authority started formal announcement of monetary policy since 2011, as per the provision s of the Royal Monetary Authority Act of Bhutan2010
In addition to the above, the RMA’s subsidiary functions, which are also extremely important, and which complement its core function, are outlined below [b) through g)].

b) The Bank of Issue

The RMA Act endows the RMA with the sole right of issuing currency notes and coins in Bhutan for the purpose of directly influencing the amount of currency in circulation outside banks, thereby providing the economy with sufficient, but if possible, non-inflationary liquidity.

c) The Bankers' Bank

This function includes the acceptance of deposits from banks as prudential reserves for banks (e.g., Minimum Reserves), the willingness to discount commercial and Government debt paper, and the commitment to act as “lender of last resort” to banks in the case of short-term liquidity shortages. It also involves the provision of central clearance facilities for interbank transactions.

d) The Government's Bank

The RMA is the banker and the fiscal agent for the Government, and shall be the depository of the Government. The RMA may also make advances to the Government which are temporary, and shall not extend on a revolving basis, subject to repayment within three months following the end of the financial year in which they were granted. Further at no time shall the aggregate principle amount disbursed and amount outstanding on advances granted by the RMA to the Government exceed the equivalent of 10% of the annual average of the Royal Government’s published ordinary revenue of the two financial years of immediate preceding.

e) The Advisor to the Government

The RMA may render advice to the Government as and when required by the Royal Government, and furnish reports on matters relating to monetary stability and finance or any matter relating to the functions, powers, and duties of the Authority. Further, the RMA shall be required to inform and advice the Royal Government concerning matters relating to the credit conditions in the country, or any proposals, measures, and transactions relating thereto, which in the opinion of the Authority, is likely to affect the achievement of monetary stability.

f) The Guardian of the Country's External Reserves

The RMA is the owner, depository and manager of the official external assets of the country, including gold and foreign currency reserves. Guarding international reserves usually implies responsibility for the Exchange Rate Policy (the external value of the Ngultrum is declared by the Government on recommendation of the RMA’s Board, while the RMA has the responsibility to implement and support it), Reserve Management (with a view to the prudent management of the funds, and with due regard to its liquidity, safety, and profitability, in that order; while maintaining External Reserves at a level adequate for the international transactions for Bhutan or as may be required by law), and External Debt Management on behalf of the Ministry of Finance. In Bhutan, as in various other developing countries, Reserve Management also includes the formulation, implementation, monitoring, and enforcement of the Foreign Exchange Regulations.

g) Promotion of Financial Sector Soundness

This function refers to the establishment of an effective financial system, with the aid of which financial transactions necessary for the smooth functioning of the economy can be carried out with a minimum amount of cost and time involved. In this connection, the RMA has been mandated to be a facilitator of a modern payments and clearing system. It also implies the formulation and application of financial regulations and prudential guidelines to ensure the stability and integrity of the financial system in Bhutan. To that end, the RMA exercises both the On-site and Off-site prudential supervision over the financial institutions in order to safeguard their financial soundness and to ensure they observe sound practices and compliance with the regulations issued by the RMA. It also includes the licensing of financial institutions.