central bank

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Recommended: The financial crisis of 2008–2009

2.1 Introduction The central bank, Bank for Banks, Lender of last resort or Bank of the government; can be defined as a government institution that manages and supervises a country's banking sector. The central bank brings about the country's monetary policy through utilizing the various monetary tools: open market operations, discount rate and the required reserve ratio. Those tools are of vital importance in the process of combating the two economic phenomena that any economy in the world encounters: inflation and unemployment, and thereby enhancing the economic situation and mitigating potential financial conflict. Therefore, a solid central bank in Palestine is highly indispensable for backing the vigorous economic growth in west-bank, Palestine. Thus, the Palestinian monetary authority (PMA) – the emerging central bank - was established in Ramallah by an act of the Palestinian legislative council, Law number (2) of 1997 which outlined the full authority of the PMA; "Issue the national currency, regulate banking activities, provide liquidity to banks, serve as financial agent to the Palestinian national authority, regulate activities of money-changers and develop and regulate monetary and credit policies". This section is divided into two main parts; the first discusses observed evidences by research studies and what has been written in the central bank monetary policies and its key functions, the other focuses on the Palestinian context, in other words, explores the Palestinian monetary authority's proclaimed capabilities in providing liquidity assurance to the banking sector in Palestine and the lack of confidence in its policies and strategies by the local banks. 2.2 Monetary Policy According to (Pailwar, Veena K.... ... middle of paper ... ...eturns to look for investments with greater risk; this could threaten the stability of the financial system. It is also possible that the pertinent intervention of central banks in the interbank lending market and leniency in injecting liquidity will reduce the motivation of some of these banks to treat imbalances and delay their consolidation of their balance sheets. Others argue market sensitivity to the movements of central banks created a state of dependence on, or perhaps even an addiction to, the provided facilities and increased investors’ demand for a guarantee that central banks will remain present in the market for extended periods of time. This may contradict with the needs of the overall economy, the foundations of sound monetary policy and even the financial soundness of the central banks themselves" (Palestinian monetary authority annual report, 2012)

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