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Part A

The central bank is responsible for monetary policy, financial stability, and issuing currency in a country. It aims to stabilize the value of the currency and money supply, control interest rates, and ensure the stability of the banking system. Without a central bank, a country could experience unstable economic conditions due to a lack of monetary policy and currency stability, increased financial instability and bank failures, and loss of regulatory oversight of the financial system.

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23 views3 pages

Part A

The central bank is responsible for monetary policy, financial stability, and issuing currency in a country. It aims to stabilize the value of the currency and money supply, control interest rates, and ensure the stability of the banking system. Without a central bank, a country could experience unstable economic conditions due to a lack of monetary policy and currency stability, increased financial instability and bank failures, and loss of regulatory oversight of the financial system.

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lucxu2003
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© © All Rights Reserved
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A.

The functions of central banks

Monetary policy: an action taken by government to control the amount of money in


an economy and how easily available it is, for example by changing the interest rate.

E.g: These countries have made conscious use of monetary policy as an essential
part of their efforts to promote domestic prosperity.

Financial stability: a situation in which the function of efficient financial inter


mediation and payment services continue without disruptions despite internal and
external shocks, and financial risks are supervised and managed so well.

E.g: Our primary priority is to restore the financial stability of the country.

Issues currency: putting banknotes into circulation.

E.g: On behalf of the Government of India, the Reserve Bank of India issues
currency notes.

What is the central bank?

Central bank (Reserve Bank or Monetary Authority) is a financial institution


responsible for supervision a country’s monetary system, managing its currency, and
regulating its financial institutions.

Most central banks are owned by the state, but still have a certain degree of
independence from the government.
Central bank of Japan

Federal Reserve System (FED)

Central Bank of Vietnam

What is the purpose of the central bank’s operations?

The purpose of the central bank's operations is to stabilize the value of currency,
stabilize the money supply, control interest rates, and save commercial banks at risk
of failure.

What are the function of central banks?

- Exclusive issue currency and regulate currency circulation.


- Carry out the government’s financial policy
- Formulating and implementing monetary policy
- Preserve financial stability

What would happen if there was no central bank?

If there was no central bank in a country, several significant consequences could


occur:

1. Lack of Monetary Policy: there would be no entity to regulate the money


supply, set interest rates, or control inflation. This could lead to unstable and
unpredictable economic conditions.
2. Increased Financial Instability: there would be no institution to stabilize the
financial system, potentially resulting in increased bank failures and economic
downturns.
3. Lack of Currency Stability: the value of the currency could fluctuate widely,
leading to uncertainty for businesses and individuals and making international
trade more challenging.
4. Loss of Regulatory Oversight: there could be a higher risk of bank failures,
fraud, and financial misconduct.
5. Absence of Financial Services: managing payment systems and maintaining
the stability of the banking sector services, negatively impacting the
functioning of the financial system.

Overall, this is an important and indispensable financial institution in every country,


helping to stabilize the currency in particular and the economy in general.

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