The instruments include means that are available to monetary authorities and that are used to achieve the ultimate aims. Central banks generally use a number of key instruments such as changes in the ratio of legal reserves, the discount rate or the central bank rate, and open market operations. Very often, these instruments are enhanced by using other supplementary instruments, known as direct instruments, generally in the form of instructions issued by the central bank. Direct instruments are much used by developing countries because the nature of the economic problems of these countries and their economic conditions do not allow their monetary authorities to be quite free in applying traditional instruments of monetary policy.
It relates to existing legal and institutional procedures, particularly as the interest rate on the Kuwaiti dinar is governed by legal limits, in addition to issues related to the degree of competition inside the banking system.
It also relates to the basic features of the Kuwaiti economy, not only as an economy based on the philosophy of free markets and free capital movement, but also as an oil economy of high exposure, depending on imports to meet a major portion of consumption and investment demand.
Talking about the monetary policy goals as shown above should not m...
Talking about the monetary policy goals as shown above should not mitigate the important role central banks may play in other economic areas, especially in the area of developing money and capital markets in countries where these markets are lacking. The development of such markets will enable central banks to use one of the important instruments of monetary policy, i.e. open market operations. The Central Bank of Kuwait and the organization of banking business specified the goals of the Central Bank of Kuwait, similar to those of central banks in general. The goals related to the function of the monetary policy of the Central Bank of Kuwait can be stated as follows:
To endeavour to secure the stability of the Kuwaiti currency and its free convertibility into foreign currencies.
To endeavour to direct credit policy in such a manner as to assist economic progress and the growth of the national in-come.
To supervise the banking system in the State of Kuwait.
Since the mid-eighties the Central Bank of Kuwait has been on a course dictated by the nature of new developments witnessed by the Kuwaiti economy as a result of a number of internal and external effects of the securities market crisis on the whole economic condition, including the emergence of the difficult debt problem as a key issue threatening the financial system in the country. The Central Bank of Kuwait had no alternative but to make the protection of the banking and financial system its top priority and to take necessary measures to identify repercussions of the securities market crisis and prevent the accumulation of its negative effects on both the Kuwait economy and community.
Based on the priority of this commitment, the Central Bank adopted a number of measures,
Monetary policy, in its narrow concept, is defined as the measures focused on regulating money supply. Monetary policy is defined as "the set of procedures and measures taken by monetary authorities to manage money supply, interest and exchange rates and to influence credit conditions to achieve certain economic objectives".
One of the most important functions of the countrie is the regulation of money supply. This is dealt by the monetary policy of that particular country that has its limitations and demand serious attention from not only the policy makers but also the public who would have to follow these policies.
The United States came to the rescue of Kuwait and, under the authorization of the United Nations, drove the Iraqis back to their domestic border. This Gulf War, as it is called, affected Kuwait’s previously thriving economy. It caused heavy damage to Kuwait’s oil industry, incurred several war debts and reconstruction costs, and caused the loss of essential foreign workers.
The semi-pegged currency system dictates that all governments forming the European Union keep their currencies within a specified range. It stipulates that no currency of any given European Union member should fluctuate beyond 2.25 percent from the agreed and set central limit.
Financial markets are further divided into money markets and capital markets. Money markets deal in securities with a maturity date within one year. Capital markets mature in longer time frames. Bonds are debts with a maturity date, the investor loaned the business money. A stock has no maturity date; the investor owns a portion of the business.
One of these important functions includes the regulation of money supply in the country. This is dealt by the monetary policy of that particular country that has its limitations and demand serious attention from not only the policy makers but also the public who would have to follow these policies.
This implies that it is that rate which is charged by financial institutions in Australia’s banking sector to other banks for overnight loans. This official cash rate is an important monetary policy instrument that influences other interest rates within the market.
This starts from the macro and the micro levels of the economy (Stationery Office, 2006 p. 34). The economic stability of a country/state depends on the effectiveness of economic policies advanced in order to regulate the fiscal activities within the country and at the international levels.
Real Gross Domestic Product (GDP) grew at an average annual rate of 7.3% between 2003 and 2005, its fastest pace in 15 years, fuelled primarily by higher crude prices and production. The US Energy Information Administration projects Kuwait's 2006 oil-exports at US$40.3 billion dollars, up from US $36.9 billion dollars in 2005.
CBK's published Annual Report during the fiscal years 2005 and 2006 identifies and outlines the development of the implemented monetary policy for the past two years. In general, CBK's monetary policy is geared to achieve the following objectives: enhance the attractiveness of Kuwaiti dinar and firmly establish its attractiveness as a domestic store of value; absorb the excess domestic liquidity; and boost competition among the banking and financial system units (Annual Report 2005-2006 2).
Without a sound monetary policy, our economy would spin out of control. The policies that are conducted by the Federal Reserve Board (The Fed) are the are some of the most influential factors that affects our economic livelihood.
Monetary policy attempts to influence demand for products by increasing and decreasing short term interest rates charged to banks for Federal Funds.
2 pages (500 words)Essay
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