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week nine Flashcards

central banks and the money supply process

1
Q

what roles does the central bank play throughout the world

A

regulate the value of the
national currency, financing the government, and acting as a
‘lender of last resort’ to banks suffering from liquidity and/or
credit crises

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2
Q

what are the arguments for public ownership of the central bank (3)

A
  • Act in the ultimate public interest
  • Private ownership bias central banks toward self-serving profitmaking interests, hence increasing risk-taking and balance sheet troubles
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3
Q

what are the arguments for private ownership

A
  • guarantees central bank independence
  • restricts the distribution of dividends per share
  • – private owners are required to recapitalize the central bank in
    the case of losses which lifts this burden off the fiscal budget
  • more accountable helps with the misuse of certain policies as political response
  • reduced goverment interference
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4
Q

when did the European central bank exist

A

European Central Bank (ECB) came into existence on June 1, 1998, to handle the transitional issues of the nations
that comprise the Eurozone

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5
Q

who has to comply with the ECB

A
  • All of the member states of the European Union have to comply with a set of economic and legal conditions
  • The creation of the Eurozone and of the new supranational institution, the ECB, was a milestone of European integration
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6
Q

As of 2017 what is the state of the euro system

A
  • the euro system has now 19 countries out of the 27 member states of the EU have joined the euro area which compromises of the ECB and the NCBN
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7
Q

Who owns the capital stock of the ECB?

A

The capital stock of the ECB is owned by the central banks of the current 27 EU member states.

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8
Q

How is the balance sheet of the ECB held?

A

The balance sheet of the ECB, including its assets and liabilities, is held by the National Central Banks (NCBs).

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9
Q

How are the shares of the NCBs in the total capital stock of the ECB determined?

A

The shares of the NCBs in the total capital stock of the ECB are weighted according to the shares of the respective member states in the total population and GDP of the EU.

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10
Q

How often does the ECB adjust the shares of the NCBs in its total capital stock?

A

The ECB adjusts the shares every five years and whenever a new country joins the EU.

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11
Q

Which central banks hold the highest capital key percentages of the ECB’s capital?

A

The highest capital key percentages of the ECB’s capital are held by the Deutsche Bundesbank and Banque de France.

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12
Q

Who are the main decision making bodies of the ECB

A
  • the governing council
  • the executive board
  • the general council
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13
Q

what does the European system of central banks promote

A

promotes monetary and financial cooperation among the 27 member states and the ECB and the 19 national central banks

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14
Q

What is the main function of the Governing Council of the ECB?

A

The main function of the Governing Council of the ECB is to conduct monetary policy with the primary objective of maintaining price stability in the euro area.

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15
Q

Who chairs the Governing Council of the ECB?

A

The Governing Council of the ECB is chaired by the ECB president

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16
Q

How often does the Governing Council of the ECB meet?

A

The Governing Council of the ECB meets in Frankfurt on a fortnightly (every two weeks) basis.

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17
Q

When does the Governing Council of the ECB decide on monthly monetary policy decisions?

A

At the beginning of each month, the Governing Council of the ECB decides on the monthly monetary policy decisions in accordance with the economic and monetary developments in the Eurozone.

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18
Q

How are the Euro area countries divided in terms of voting rights in the ECB?

A

Euro area countries are divided into groups based on the size of their economies and the ranking of their financial sectors. The Governors from the five largest countries (Germany, France, Italy, Spain, and the Netherlands) share four voting rights, while the remaining 14 countries share 11 voting rights.

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19
Q

What is the responsibility of the Executive Board of the ECB?

A

he Executive Board of the ECB is responsible for the day-to-day operations and management of the ECB and the Euro system

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20
Q

How many members comprise the Executive Board of the ECB?

A

The Executive Board of the ECB comprises six members

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21
Q

Who are the members of the Executive Board of the ECB?

A

The Executive Board of the ECB includes the president and the vice-president of the ECB, as well as four other members who take decisions in their personal capacity.

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22
Q

What is the composition of the General Council of the ECB?

A

The General Council of the ECB comprises the president and the vice-president of the ECB, along with the governors of the National Central Banks (NCBs) of the 27 EU member states.

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23
Q

What is the main task of the General Council of the ECB?

A

The main task of the General Council is to encourage cooperation between the National Central Banks of the member states of the EU.

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24
Q

What functions does the General Council of the ECB perform?

A

The General Council performs important advisory functions such as collecting statistical information for the ECB, preparing the ECB’s annual reports, and standardizing the accounting and reporting operations of the NCBs.

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25
Q

According to the Statute of the ESCB and the ECB, when will the General Council be dissolved?

A

he General Council is a transitional body that will be dissolved when all EU member states have introduced the single currency.

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26
Q

what are the three man objectives of the ECB

A
  • maintain price stability in the economics of the EU
  • support the economic policies of the eurozone nations
  • ensure an independent and open market economy
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27
Q

What the ECB want to maintain

A

As price stability is important for attaining economic growth and job creation, the ECB endeavours to maintain its independence from governments

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28
Q

What is the primary objective of the ECB’s monetary policy?

A

The primary objective of the ECB’s monetary policy is to maintain price stability, aiming for a medium-term inflation rate of close to 2%.

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29
Q

What are the three key policy interest rates set by the Governing Council of the ECB?

A

The three key policy interest rates set by the Governing Council of the ECB are the deposit facility rate, the refinancing rate, and the marginal lending facility rate

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30
Q

What unconventional monetary policy measures has the ECB introduced since September 2008?

A

Since September 2008, the ECB has introduced unconventional monetary policy measures including emergency liquidity assistance (ELA), quantitative easing (QE), and negative interest rate policy (NIRP).

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31
Q

What is the purpose of quantitative easing (QE) as a monetary policy tool?

A

Quantitative easing (QE) is a monetary policy tool used by central banks to increase money supply and stimulate the economy by purchasing sovereign bonds and other financial assets from commercial banks and financial institutions.

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32
Q

How does the ECB conduct monetary policies such as quantitative easing?

A

The ECB assigns the tasks of conducting monetary policies such as quantitative easing to the central banks of the Eurozone countries. For example, the 19 National Central Banks (NCBs) are tasked with buying bonds in their respective sovereign bond markets as part of the quantitative easing program.

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33
Q

what is the fed

A
  • one of the largest and most influential central banks in the world.
  • an independent entity that is privately owned by the member banks
  • the fed is subject to oversight from congress that periodically reviews its activities
  • supervises and regulates the nation’s financial
    institutions and simultaneously serves as their banker
34
Q

What role does the Federal Reserve Bank of New York play in the Federal Reserve System?

A

The Federal Reserve Bank of New York plays a special role in the Federal Reserve System due to its district containing many of the largest commercial banks in the United States, as well as its active involvement in the bond and foreign exchange markets.

35
Q

What is the main responsibility of the Federal Reserve Board of Governors?

A

The main responsibility of the Federal Reserve Board of Governors (FRB) is regulatory and supervisory oversight of member banks.

36
Q

Who comprises the Federal Open Market Committee (FOMC)?

A

The Federal Open Market Committee (FOMC) comprises 12 members, including seven members of the Federal Reserve Board of Governors, the president of the Federal Reserve Bank of New York, and four regional Federal Reserve bank presidents.

37
Q

How often does the FOMC convene, and what decisions does it make?

A

The FOMC convenes eight times a year to decide on interest rates and monetary policy decisions.

38
Q

What are some similarities between the ECB and the Fed?

A

Both the ECB and the Fed are entities that bind several regional central banks together, operate as independent institutions with decentralized structures, and are responsible for making monetary policy decisions.

39
Q

What is the primary objective of the ECB, and how does it differ from that of the Fed?

A

The primary objective of the ECB is to achieve price stability, while the Fed’s dual mandate includes delivering price stability as well as supporting macroeconomic objectives such as growth and employment.

40
Q

How does the Fed differ from the ECB in terms of monetary operations and supervision of financial institutions?

A

The Fed centralizes monetary operations within the Federal Reserve System, while the ECB’s monetary operations are conducted by the National Central Banks. Additionally, the Fed is involved in the supervision and regulation of financial institutions, whereas the ECB leaves these tasks to individual countries in the European Monetary Union.

41
Q

How do the ECB and the Fed differ in their approach to financing fiscal budget deficits?

A

The Fed buys government bonds outright to finance fiscal budget deficits, while the ECB accepts them as collateral for new loans to the banking system.

42
Q

When was the Bank of England (BoE) founded?

A

The Bank of England, known as the ‘Old Lady’ of Threadneedle Street, was founded in 1694, making it the second-oldest central bank in the world.

43
Q

What is the structure of the Bank of England’s Monetary Policy Committee (MPC)?

A

The MPC consists of 9 members, including 5 BoE staff and 4 independent experts chosen from outside the bank.

44
Q

What is the main policy tool used by the Bank of England to control growth?

A

interest rate.

45
Q

What is quantitative easing, and why has the Bank of England used it?

A

Quantitative easing is an unconventional form of monetary policy aimed at directly increasing private sector spending in the economy and returning inflation to target. The Bank of England, along with many other central banks, has used quantitative easing since interest rates were cut close to zero following the global financial crisis.

46
Q

How does the Bank of England’s autonomy compare to that of the Federal Reserve?

A

less autonomy compared to the Federal Reserve, as the government’s inflation target is announced each year by the Chancellor of the Exchequer in the annual Budget statement, and the minutes of the MPC meetings are published simultaneously with the interest rate decision.

47
Q

When did the Bank of Canada (BoC) start, and when did it transition to public ownership?

A

The Bank of Canada started in 1935 as a privately owned financial institution but was turned into public ownership since 1938.

48
Q

What is the main mandate of the Bank of Canada (BoC)?

A

The main mandate of the Bank of Canada is to preserve the value of money by keeping inflation low, stable, and predictabl

49
Q

What is the monetary policy framework adopted by the Bank of Canada?

A

The Bank of Canada adopts a dual key monetary policy framework comprising an inflation-control target and a flexible exchange rate.

50
Q

How often are the Bank of Canada’s decisions announced?

A

eight times a year.

51
Q

What are the key stages involved in the Bank of Canada’s monetary policy decision-making process?

A

staff presentations, major briefings, policy recommendations, deliberations, and decision announcements.

52
Q

When was the Bank of Japan (BoJ) founded, and what event marked its restructuring after World War II?

A

882 during the Meiji Restoration. It was restructured after World War II in 1949.

53
Q

What were the main monetary policy tools used by the Bank of Japan until the early nineties?

A

imposition of bank credit growth quotas on the commercial banks.

54
Q

What are the two main mandates of the Bank of Japan (BoJ)?

A

The two main mandates of the Bank of Japan are price stability and financial sector stability in order to achieve stable and sustainable macroeconomic growth.

55
Q

How often does the Policy Board of the Bank of Japan make monetary policy decisions?

A

eight times a year.

56
Q

What event marked the reduction of the Bank of Japan’s scope of action and independence compared to its European counterparts?

A

The 1997 Bank of Japan Act reduced the scope of action and the independence

57
Q

When was the People’s Bank of China (PBoC) founded, and what was its origin?

A

The People’s Bank of China was founded in 1949 as a result of the merger of three of the largest commercial banks.

58
Q

What is the main mandate of the People’s Bank of China (PBoC)?

A

maintain the stability of the value of the currency, reduce overall risk, and promote stability of the financial system to enhance economic growth.

59
Q

To whom does the People’s Bank of China report?

A

The People’s Bank of China reports to the Standing Committee of the National People’s Congress.

60
Q

What are the main policy tools employed by the Monetary Policy Committee (MPC) of the People’s Bank of China?

A

interest rates and reserve requirements as the main policy tools.

61
Q

What has the People’s Bank of China done in terms of interest rate liberalization since the turn of the century?

A

slowly liberalizing interest rates since the turn of the century, allowing banks to pay depositors whatever interest they like.

62
Q

What is the composition of the Monetary Policy Committee (MPC) of the People’s Bank of China?

A

The MPC consists of 13 members, including the PBoC’s governor, two deputy governors, and key representatives of various government institutions.

62
Q

How does the People’s Bank of China (PBoC) maintain stability in the financial system?

A

he PBoC maintains stability in the financial system by imposing high reserve requirements, sometimes reaching 18-20%.

63
Q

What was the interest rate policy of the People’s Bank of China (PBoC) in earlier years?

A

In earlier years, the PBoC held a three-percentage point gap between deposit and lending rates, providing easy profits for banks when deposits are turned into loans.

64
Q

What is the size of the financial asset holdings and foreign currency reserves of the People’s Bank of China (PBoC)?

A

largest financial asset holdings and foreign currency reserves held by any central bank in the world as of 2017

65
Q

ow often does the Monetary Policy Committee (MPC) of the People’s Bank of China (PBoC) convene to make monetary policy decisions?

A

The MPC convenes on a quarterly basis to make monetary policy decisions.

66
Q

What are Emerging Market Economies (EMEs) and what distinguishes them?

A

Emerging Market Economies (EMEs) are economies of Asia, Latin America, and Eastern Europe that are growing rapidly and experiencing booming industrialization and increased exports.

67
Q

What additional roles do central banks of Emerging Market Economies (EMEs) play compared to those in industrial nations?

A

Central banks of EMEs not only perform central banking functions but also build and reform financial infrastructure, develop financial markets, manage foreign exchange reserves, and implement policies to promote growth and exports

68
Q

Name some successful central banks in Emerging Market Economies (EMEs).

A

Reserve Bank of India (RBI), South African Reserve Bank, Banco do Brasil, and Bank Negara Malaysia.

69
Q

hat are “financial inclusion policies” pursued by central banks in Emerging Market Economies (EMEs)?

A

enhancing credit flow to productive export-oriented industries and employment-intensive sectors, subsidizing banks, increasing access to affordable financial services, promoting financial education and literacy, and supporting small local rural banks.

70
Q

What are the two key dimensions of central bank independence?

A
  • goal independence
  • instrument independence
71
Q

What is goal independence in terms of central bank independence?

A

Goal independence refers to the institutional characteristics that insulate the central bank from political influence in defining its monetary policy objectives.

72
Q

What is instrument independence in terms of central bank independence?

A

Instrument independence refers to the ability of the central bank to freely implement policy instruments in its pursuit to meet the monetary goals.

73
Q

What is the case for central bank independence?

A

potential inflationary biases resulting from political pressure to boost short-term output, public distrust of politicians in conducting monetary policy, and politicians granting independence to avoid public criticism.

74
Q
A
75
Q

What is the case against central bank independence?

A

macroeconomic stability can be best achieved through coordinated monetary and fiscal policy, and central banks are not immune from political pressures and may pursue narrow self-interest.

76
Q

What is the trend toward greater central bank independence?

A

The trend toward greater central bank independence is driven by the high correlation between macroeconomic stability and central bank independence, leading to enhanced independence globally, often with increased transparency and accountability measures.

77
Q

How has the independence of central banks evolved over time?

A

Traditionally interventionist central banks, such as the Bank of England and the Bank of Japan, have been granted more independence since the 1990s. This trend has been observed globally, with central banks becoming more autonomous in their policymaking.

78
Q

What measures have been taken to ensure accountability and transparency in central bank operations?

A

made accountable to their parliaments and required to increase transparency about their operations. They may also establish committees or invite external members to enhance oversight and public trust.

79
Q
A

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