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    Money and The Central Bank

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    Reianmark Pahugot
    The central bank is responsible for administering the monetary, banking, and credit system of a country to achieve monetary stability and foster economic development. It uses various monetary policy tools like adjusting reserve requirements, rediscounting, and open market operations to regulate the money supply. However, these tools can be ineffective if not properly coordinated. Unrestrained money supply growth or counterfeiting can cause people to lose confidence in the currency and its value. During financial crises, central banks try different approaches like lowering interest rates and providing liquidity, but events can still spiral out of control as seen in unprecedented market volatility not witnessed since past decades.

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    Money and The Central Bank

    Uploaded by

    Reianmark Pahugot
    56 views3 pages
    The central bank is responsible for administering the monetary, banking, and credit system of a country to achieve monetary stability and foster economic development. It uses various monetary policy tools like adjusting reserve requirements, rediscounting, and open market operations to regulate the money supply. However, these tools can be ineffective if not properly coordinated. Unrestrained money supply growth or counterfeiting can cause people to lose confidence in the currency and its value. During financial crises, central banks try different approaches like lowering interest rates and providing liquidity, but events can still spiral out of control as seen in unprecedented market volatility not witnessed since past decades.

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    Money and the Central Bank

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    The central bank is responsible for administering the monetary, banking, and credit system of a country to achieve monetary stability and foster economic development. It uses various monetary policy tools like adjusting reserve requirements, rediscounting, and open market operations to regulate the money supply. However, these tools can be ineffective if not properly coordinated. Unrestrained money supply growth or counterfeiting can cause people to lose confidence in the currency and its value. During financial crises, central banks try different approaches like lowering interest rates and providing liquidity, but events can still spiral out of control as seen in unprecedented market volatility not witnessed since past decades.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    56 views3 pages

    Money and The Central Bank

    Uploaded by

    Reianmark Pahugot
    The central bank is responsible for administering the monetary, banking, and credit system of a country to achieve monetary stability and foster economic development. It uses various monetary policy tools like adjusting reserve requirements, rediscounting, and open market operations to regulate the money supply. However, these tools can be ineffective if not properly coordinated. Unrestrained money supply growth or counterfeiting can cause people to lose confidence in the currency and its value. During financial crises, central banks try different approaches like lowering interest rates and providing liquidity, but events can still spiral out of control as seen in unprecedented market volatility not witnessed since past decades.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Money and the Central Bank

    FUNCTIONS OF THE CENTRAL BANK

    In Section 2 articles of the amended republic act 265, it is the responsibility of the central bank to
    administer the monetary, banking and credit system of the republic. This responsibility is exercised to
    achieve monetary objectives consonance with the overall economic policies of the government.
    The objectives of the following:
    1. To maintain internal and external monetary stability in the Philippines, and to preserve the international
    value of the peso and its convertibility to other freely convertible currency.
    2. To foster monetary credit and exchange condition conducive to a balanced and sustainable growth of
    the economy.

    The confidence in Money

    The central bank is the only authorized government entity to print money and responsible for the proper
    administration of the monetary banking and credit system of the republic to achieve monetary stability
    and create conditions conducive to economic development.
    What are some instances of the monetary mismanagement by the monetary authorities that can caused
    people to lose confidence of monetary in what are the probable effects?

     One example is the unrestrained growth in money supply which causes severe inflation and
    distorts investment production and employment.
     Another example, is the pervasive and unchecked circulation of fake money. Likewise, money
    loses value and may even be an exemption that a rule as a medium of exchange.

    Monetray Policies

    Some policy Concepts


    The central bank uses monetary policies to regulate money through the credit and banking system in order
    to maintain monetary stability conducive to economic development.

    Short tools affecting money supply


    1. reserve requirements.
    During the first half of 1998, the BSP implemented measures aimed at the lowering bank intermediation
    caused to induced further declines in bank lending rates. In particular, a recomposition of the reserve ratio
    was implemented effective march 20, 1998 which reduce banks statutory reserve by 3 percentage points
    to 10% an increased liquidity reserves by an equal amount to 7%

    2. Rediscounting
    The Central bank can infuse money in to the reserves of the banking system by buying its loan papers at
    the rediscounted values. There is a certain label of preserves depending on their reaction to the prevailing
    rediscount rates and the amount that the central bank is willing to buy.

    3. Open market operation

    Another way the central bank can change the level of the money supply is by buying and selling
    government securities which are financial papers with short term maturities and the central bank siphons
    and borrows money from the economy when it sells securities.

    Effectiveness in Trimming Liquidity

    The effectiveness of open market operation was put to a test in 1984 when monetary authorities used the
    instrument to help mop up excess money and contain inflation. The central bank floated more treasury
    bills with a weighted average interest rate of 35% relatively attractive to the prevailing rate of 20-28% for
    the short term loans and placements.

    THE NEED FOR POLICY COORDINATION


    Applying the instrument alone maybe inadequate to solve the problem.
    Example:
    Increasing the required reserve ratio is ineffective to decrease money supply if banks can still avail of the
    central banks rediscounting facilities and open market operation to augment credit.

    HISTORY UNFOLDS BEFORE OUR EYES


    In the months leading to last week, regulator used every trick in their book. They lowered interest rates,
    injected into credit market, but mortgage woes continued to spread.
    Unprecedented Market Gyrations

    As a consequence of these events stock markets across the globe also saw unprecedented moves in just a
    span of a week some of the memorable moment include:
    1. The largest 1 day loss since the 9/11 attacks.
    2. the largest 1 day gain since October 2002
    3. The largest 2 day gain since march 2002
    4. The largest volatility as measured by the vix October 2002

    ONCE IN A LIFETIME EVENT

    Allan greenspan said that “we are in a once in a century type of event it definitely happens only once in a
    lifetime one for the books for sure books will be published tumultuous and historic moment.

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