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Benefits and drawbacks of central bank independence
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The Independence of the Chinese Central Bank
1. Introduction
How much degree of the independence the country’s central bank has? It concerns whether the country’s monetary policy is reasonable and scientific; whether the stability of currency value is ensured; whether the country’s economy could have a healthy development. The problem of the central bank’s independence is one of the most important problems of a country’s finance and legal development.
1.1 Definition
The central bank is a special financial institution, which has the power (given by the government)of making and carrying out monetary policy, giving the national economy control and management. The central bank is the bank of government; the bank of issue; the bank of banks; the bank of controlling macro-economy. The main difference between the central bank and the commercial banks is that the purpose of the central bank is not to make a profit, the purpose of the central bank is to give the service to the aim of the country’s macro-economy.
Therefore, the problem of the central bank’s independence is how much decision-making power the central bank has in making and carrying out monetary policy, controlling and managing the finance. The degree of the central bank’s independence is determined by its legislation definition and when the central bank uses its decision-making power, the extent of the central bank is subject to the government. In a way, the problem of the central bank’s independence is the confirmation problem of the central bank’s legal status and the relationship between the central bank and the government.
1.2 Background
Now many countries put the stability of currency value as the most important function of the central bank. During the First...
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The seventh chapter asks, ‘Why Do Central Bankers Have Power over the Economy?’. In this chapter, the authors evaluate the power of central banks during normal and tough times and question whether central banks ‘have the power to control something as huge as the macroeonomy’ (p.74).
In conjunction with their respective governments, central banks have been manipulating economies for decades. Central bankers have sought to control interest rates, inflation and credit through their policies. Their efforts have impacted the stock market, job creation, home construction and many more aspects of the economy. However, in recent years, central bankers have manipulated themselves into a corner and become trapped in the mess that they made.
Before we begin our investigation, it is imperative that we understand the historical role of the central bank in the United States. Examining the traditional motives of this institution over time will help the reader observe a direct correlation between it and its ability to manipulate an economy. To start, I will examine one of its central policies...
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In 1962, Milton Friedman wrote the essay “Should There Be An Independent Central Bank?” Since then, half a century has passed. Nowadays, many countries in the world have their independent central banks. But the discussion about whether central banks should be independent does not end. This paper will try to 1) provide the arguments on both pros and cons whether central banks should be independent; 2) provides evidence about the relationship between central bank independence and inflation in developed countries, developing countries and transition countries.
The first important concept I learned was the ‘goals of monetary policy’. The primary goal of a central bank is price stability (low and stable inflation). Some of the Feds (short for the Federal Reserve Bank) other concerns are:
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Some people say that the definition of independence is a complex word and idea to try to define. In al truth independence is a perplexing word to try to define. This is because everybody has their own speculations of what independence is. Very infrequently are their two people that have the same perception of what the definition of independence is. What I perceive the definition of independence is the absolute freedom to do what you want, and to not be held back by any rules or laws of government or man, but by the rules and laws of nature and your own self concise. My view of independence may greatly differ form your beliefs on the definition but in this paper I will try to show exactly what my perspective on the definition of independence is by my experiences, my beliefs, my thoughts, and research on the subject at hand.