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MONETARY POLICYAND THE ECONOMY

8/20/2019 LEC 38-40 THE CENTRAL BANK.ppt

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DESIRED LEARNING

OBJECTIVESThe students must be able t

!m"#ehend$%

•The Genes&s ' the Cent#al Ban( &nPa(&stan % State Ban( ' Pa(&stan)

• Its Rle &n the Ma!#e!nm&! D&#e!t&n

' the E!nm*)• Its Ma+# ,un!t&ns)

• H- the Ban( uses the Mneta#* Pl&!*

t Stee# the E!nm*.

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STATE BAN/ 0 THE BAN/ O,

THE LAST RESORT• State Ban( ' Pa(&stan !ame &nt be&n1 &n 2345

and -as &nau1u#ated b* 6ua&d%&%A7am)

• 8nde# '&nan!&al se!t# #e'#ms9 the State Ban(' Pa(&stan -as 1#anted autnm* &n ,eb#ua#*2334)

•

The Ban( &s 'ull* auth#&sed t$% – Re1ulate the ban(&n1 se!t#9

 – Cndu!t an &nde"endent mneta#* "l&!*9 and

 – Set l&m&t n 1:e#nment b##-&n1s '#m the StateBan( ' Pa(&stan)

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,8NCTIONS O, STATE BAN/

O, PA/ISTAN

• Its t#ad&t&nal 'un!t&ns ma* be !lass&'&ed

&nt t- 1#u"s$%• P#&ma#* ,un!t&ns$%

 – Issue ' ntes

 – Re1ulat&n and su"e#:&s&n ' the '&nan!&al

s*stem – Ban(e#s; ban( % lende# ' the last #es#t

 – Ban(e# t G:e#nment

 –

Cndu!t ' mneta#* "l&!*

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,8NCTIONS O, STATE BAN/

O, PA/ISTAN• Se!nda#* ,un!t&ns$%

 – Mana1ement ' "ubl&! debt and '#e&1n e<!han1e

 – Ad:&s&n1 the 1:e#nment n "l&!* matte#s

 – Ma&nta&n&n1 !lse #elat&nsh&"s -&th &nte#nat&nal'&nan!&al &nst&tut&ns)

• Nn%t#ad&t&nal=P#mt&nal ,un!t&ns$% – De:el"ment ' '&nan!&al '#ame-#(

 – Inst&tut&nal&sat&n ' sa:&n1s and &n:estment

 – P#:&s&n ' t#a&n&n1 'a!&l&t&es t ban(e#s

 – P#:&s&n ' !#ed&t t "#&#&t* se!t#s)

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,8NCTIONS AND RESPONSIBILITIES

• Re1ulat&n ' L&>u&d&t*$%

 – ,#mulate and !ndu!t mneta#* and !#ed&t "l&!*

&n !n!e#t -&th the G:e#nment;s ta#1ets '# 1#-th

 – Im"lement the #e!mmendat&ns ' the Mneta#*and ,&s!al Pl&!&es C%#d&nat&n Ba#d -&th

#es"e!t t ma!#%e!nm&! "l&!* b+e!t&:es)

 – The bas&! b+e!t&:e &s t-%'ld &)e) the ma&ntenan!e

' mneta#* stab&l&t*9 the#eb* lead&n1 t-a#ds thestab&l&t* &n the dmest&! "#&!es9 as -ell as the

"#mt&n ' e!nm&! 1#-th)

 – Re1ulate the :lume and the d&#e!t&n ' 'l- '

!#ed&t t d&''e#ent uses and se!t#s) 

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,8NCTIONS AND RESPONSIBILITIES

• Ensu#&n1 the Sundness ' ,&nan!&al S*stem$%

 – Re1ulat&n and su"e#:&s&n ' the '&nan!&al s*stem

t ensu#e &ts sundness and stab&l&t* as -ell as t

"#te!t the &nte#ests ' de"s&t#s) – The ban(&n1 a!t&:&t&es a#e mn&t#ed th#u1h a

s*stem ' ?''%s&te; su#:e&llan!e and ?n%s&te;

&ns"e!t&n and su"e#:&s&n)

 – O''%s&te su#:e&llan!e &s !ndu!ted b* #e1ula# !he!(' :a#&us #etu#ns subm&tted b* d&''e#ent ban(s)

 – On%s&te &ns"e!t&n &s unde#ta(en b* the State Ban(

&n the "#em&ses ' the !n!e#ned ban(s)

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,8NCTIONS AND RESPONSIBILITIES

• E<!han1e Rate Mana1ement and

Balan!e ' Pa*ments$%

 –

Ma&nta&n e<te#nal :alue ' the !u##en!*) – Re1ulate '#e&1n e<!han1e #ese#:es ' the

!unt#*)

 – /ee" the e<!han1e #ate ' the #u"ee at an

a""#"#&ate le:el and "#e:ent &t '#m -&de

'lu!tuat&ns &n #de# t ma&nta&n

!m"et&t&:eness ' u# e<"#ts and ma&nta&n

stab&l&t* &n the '#e&1n e<!han1e ma#(et)

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,8NCTIONS AND RESPONSIBILITIES

• De:el"mental Rle$% – Th&s #le !:e#s nt nl* the de:el"ment '

&m"#tant !m"nents ' mneta#* and !a"&talma#(ets but als t ass&st the "#!ess ' e!nm&!

1#-th and "#mte the 'ulle# ut&l&sat&n ' a!unt#*;s #esu#!es)

 – Rehab&l&tat&n ' ban(&n1 s*stem &n Pa(&stan) – De:el"ment ' ne- '&nan!&al &nst&tut&ns and debt

&nst#uments &n #de# t "#mte '&nan!&al

&nte#med&at&n) – Establ&shment ' De:el"ment ,&nan!&al Inst&tut&ns

@D,Is) – D&#e!t&n1 the use ' !#ed&t a!!#d&n1 t sele!ted

de:el"ment "#&#&t&es9 "#:&d&n1 subs&d&sed !#ed&t9

and de:el"ment ' the !a"&tal ma#(et)

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MONETARY POLICY STATE BAN/

The Bas&! Des!#&"t&n ' Mneta#* Pl&!*$%

• hen e!nm&! !nd&t&ns !han1e9 theban( mn&t#s -hethe# the e!nm* &sde"a#t&n1 '#m the des&#ed "ath '&n'lat&n9 ut"ut and the# 1als)

• I' s9 the ban( annun!es a !han1e &n

the &nte#est #ate)• T &m"lement th&s !han1e9 the ban( bu*s

# sells the 1:e#nment se!u#&t&es=bnds

&n the "en ma#(et

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HO THE BAN/ 8SES MONETARY

POLICY TO STEER THE ECONOMY.

• Va#&us tls t &m"lement the mneta#*"l&!* &n!lude &nte#est #ate9 ban( #ese#:e)

• H- the ban( dete#m&nes sh#t%te#m&nte#est #ates.

 – B* bu*&n1 # sell&n1 the 1:e#nmentse!u#&t&es # bnds &n the "en ma#(et)

 – Sett&n1 the l&m&ts ' &nte#est #ate9 -h&!h the!mme#!&al ban(s !an ''e# # !ha#1e)

 – Chan1&n1 the #ese#:e%#at& #e>u&#ements '#

!mme#!&al ban(s)

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HO THE BAN/ IN,L8ENCES THE

,OREIGN ECHANGE RATE.

• At t&mes9 the ban( has t &nte#'e#e &n the"en ma#(et "e#at&ns t (ee" the

'#e&1n e<!han1e #ates -&th&n !e#ta&nl&m&ts)

• Bu*&n1 # sell&n1 a !e#ta&n '#e&1n

!u##en!* t a''e!t the ma#(et '#!es) – E<$ 8S dlla# has a""#e!&ated mu!h &n the

"en ma#(et9 and as a !nse>uen!e9 )

 – The ban( sells ne b&ll&n dlla#s '#m &ts

'#e&1n e<!han1e #ese#:es t .))&ts :alue)