Central Banking & Monetary Policy: An Introduction
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This book presents an introduction to central banking and monetary policy. We, the public, accept the following as money (M) (that is, the means of payments / medium of exchange): notes and coins (N&C) and bank deposits (BD). Because we do, we place banks in a unique situation: the major part of their liabilities is BD; therefore they are able to create BD simply by making loans. Because banks are aggressive competitors and their creditworthiness checks on customers are therefore not always sober, they are inherently unstable. This means the public needs an entity to monitor the banks and to curb excessive money creation: a central bank. Excessive money creation causes inflation and inflation management by the public (ie hedging) diverts attention away from productive behaviour; this is not conducive for economic output and welfare. Central banking is not just about monetary policy. It is also about being banker and advisor to government and managing the money and banking system.
Content
Essence of central banking
Learning outcomes
Introduction
Milieu of the central bank: the financial system
Context of central banking: financial stability
Balance sheet of a central bank
Money creation
Functions of central banks
Bibliography
Banker & advisor to government
Learning outcomes
Introduction
The interbank markets
Bank liquidity management
Banker to government
Tax and loan accounts
Public debt management
Administration of exchange controls
Bibliography
Management of money & banking system
Learning outcomes
Introduction
Banker to private sector banks
Settlement of interbank claims
Supervision of payments system
Lender of last resort
Currency (notes and coins) management
Bank supervision
Management of foreign assets
Development of the debt market
Bibliography
Money creation & framework of monetary policy
Learning outcomes
Introduction
Measuring money
Money identity: sources of money creation
Example: government issues bonds
Statutory environment
Objectives of monetary policy
Price stability
Inflation targeting monetary policy framework
Monetary policy accountability and transparency
Limitations of monetary policy
Instruments of monetary policy
Independence of central banks
Bibliography
Monetary policy: models & transmission
Learning outcomes
Introduction
Models of monetary policy
Path of monetary policy: from interest to inflation
Bibliography
Endnotes
About the Author
Alexander Pierre Faure graduated from Elsenburg Agricultural College after school and went on to Stellenbosch University where he graduated with BA (Commerce), Hons BA (Economics), MA (Economics), and PhD (Economics).
He also successfully completed the Stockbroker Examination Requirements at Witwatersrand University (and is a registered Stockbroker - presently non-broking status).
He first worked for the central bank, where he was involved in compiling the monetary statistics (money stock and sources of change, and money market liquidity analysis) and later in the execution of monetary policy.
His career after central banking included private sector banking (the recipient of monetary policy), stockbroking (influenced by monetary policy) and interest rate analysis (reading monetary policy).
After his private sector experience, he became an academic and held the positions Investec Chair in Money and Banking (at Rhodes University and the University of Fort Hare) and Foord Chair in Investments (at Rhodes University).
He is currently at Rhodes University where he teaches financial markets and monetary economics.
He has published widely, including books and papers (his recent papers can be found at: http://ssrn.com/author=1786379).
He also served on a number of boards of directors, holding the positions of Non-executive Director and Managing Director.
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