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International Trade & Banking / International Bank Management
Finance & Accounting
Pages 5 (1255 words)
International Trade & Banking / International Bank Management by [Author’s Name] 29 August 2011 International Trade & Banking / International Bank Management Introduction What role central banks play under various exchange rate regimes has long been a matter of professional debate…
The fixed vs. volatile exchange rate dichotomy is no longer relevant. Globalization and financial liberalization impose new demands on central banks. Whatever the type of exchange rate regime countries choose, under the pressure of globalization central banks strive to preserve and strengthen their independence, governed by market-based forces and pressured to enhance financial stability at the national level. The changing role of central banks in various exchange rate regimes in conditions of globalization What exchange rate regime to choose has long been a matter of governments’ concern. For many years, national and international financial systems have been dominated by a long-standing fixed vs. volatile exchange rate systems dichotomy. At the very basic level, choosing an exchange rate regime is the same as choosing a monetary policy and its direction (Stockman 2000). In this sense, central banks are expected to develop and implement the exchange rate policy that responds to the specific financial demands of home countries. In fixed exchange rate systems, the role of central banks is minimal, since money supply and demand adjust automatically and do not require changes in interest rates or other financial indicators (Stockman 2000). ...
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