Central Banks

Paper Summary:

This paper discusses the purposes of central banks and the variances that exist between countries in how central banks are instituted and developed from country to country over time. It then discusses the need for central banks to be independent of politics or any other forces and the consequences that can occur if this is not the case.

Table of Contents:
Variations
County to Country
Over Time
Key Concerns: Central Bank Reactions
Independence Issues

From the Paper:

"If free market perspectives are to be considered alone, then there is little argument against the need for central bank independence. In such a perspective, any intervention, political or otherwise, can disrupt the free market movements. At the same time, there is argument that such a degree of independence also can deter the ability of government to manage its economic growth. Another argument is that such policies put developing countries at a distinct disadvantage against more developed economies because of economies of scale.
"One of the most popular examples to illustrate the need for central bank independence is the events that led to the Great Depression. In this scenario, governments control of the country's economy, particular its investment policies affecting the monetary value of the country's currency, as a key contributing factor for the collapse. In its objective to encourage the expansion of the economy to prevent a recession because of similar recession in European markets through spending, the U.S. economy literally was not able to support expectations in the market. However, in the case of the Asian Financial Crisis, analysts now believe that it was the emphasis on liberalization encouraged policies that will eventually left governments unable to respond to kicks in inflation and maintain currency stability."

Sample of Sources Used:

• Alon, I. (2003). Chinese Economic Transition and International Marketing Strategy. New York: Greenwood Publishing
• Bergsten, Fred C. (1999). The Global Trading System and the Developing Countries in 2000. Retrieved on January 12, 2008, from http://www.iie.com/publications/wp/wp.cfm?ResearchID=135
• Bernal, L. E., Kaukab, R. S., and Yu, V. P. B. III (2005).The World Development Report 2005: An Unbalanced Message on Investment Liberalization. WTO Institutional Governance and Dispute Settlement, of the Trade and Development Programme: Geneva, Switzerland.
• Blinder, Alan S. (1999). Central Banking in Theory and Practice. Massachusetts: MIT Press
• Brown, Andrew G. and Stern, Robert M. (2005). Concepts of Fairness in the Global Trading System. Michigan, USA: Gerald R. Ford School of Public Policy, The University of Michigan

More papers on Central Banks:

• Research Paper # 115155 : "Central Banks and Monetary Policy"
• Essay # 65926 : "The Role of Central Banks in Third World Countries"
• Research Paper # 40892 : "The Objective of Central Banks: Inflation Control"

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