Central banks contribute to economic balance

Central banks contribute to economic balance

23/11/2017 12:00 am

Central Bank of IraqWithin its role as monetary economic institutions
Baghdad / Emad Al-Amara
The relationship between the government and the central bank plays an important role in financing the budget deficit and providing credit to the government. The government has its legal representation in the central bank’s board of directors and has the legal right to appoint and remove the governor of the central bank as well as other variables.
The academic economist d. “Many economists believe that the role of the central bank is more obvious when it is unable to finance public expenditure by traditional means of taxation or by cutting government spending,” he said. Currency printing and borrowing and explained , “resorting financial policy to the means of non – conventional in order to finance the budget deficit through monetary issuance (currency printing) and borrowing from the banking system, and this trend will lead to a rise in general levels of prices, so it is necessary to put restrictions on credit provided by the Bank Central government to reduce inflationary trends and the accumulation of public debt. ” “In order not to conflict between the central bank’s monetary policy and fiscal policy, specific limits are set for the central bank’s credit to the government, depending on the circumstances and nature of the existing economic activity.” Achieving economic balance and pointed out that “the responsibility of the Central Bank to contribute to achieve economic balance, is a joint task within the framework of its role as a monetary economic institution has its influential position within the framework of the comprehensive state,” stressing that “any imbalance or instability in the balance, Coordination or overlap of responsibilities between state institutions. ” “The attempt to link the independence of the central bank and the exchange rate policy has found a place in economic studies, especially under free or floating exchange arrangements. The more central the central bank is, the more effective it will be in determining appropriate exchange rates “He said. He pointed out that “the government’s involvement with the central bank in determining the exchange rate policy will lead to the difference or contradiction between the purposes of the exchange rate, and other monetary purposes that both the bank and the government seeks to achieve.” “There are opinions that” when sudden crises will be the intervention of the Central Bank is ineffective because of the participation of political authorities in the functions of the exchange rate policy of the Central Bank . ” “This view has a lot of extremism, because even in countries whose central banks have a high degree of independence, the determination of the appropriate exchange rate system or mechanism is shared by both the government authorities and the central bank. The exchange rate policy is under the control of the government “He said. Independence and inflation rates in turn between d. Qusay al-Jabri, that the central bank’s responsibility to maintain and stabilize prices, any acceptable rates of inflation, the more central bank is characterized by independence, it is able to achieve this goal In order to prove that relationship a number of economic researchers conducted quantitative studies were compared to average Inflation in certain countries, for specific periods with the degree of independence of the central banks of the countries and the same period, and acknowledged the inverse relationship between the degree of independence and the rate of inflation.

alsabaah.iq