Objectives of Central Banks

Central banks oversee the banking system in their country. They play an important role in managing a state’s currency, money supply, and interest rates. There are five major objectives of central banks.

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objectives of central banks

Objectives of Central Banks

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1. Inflation

A central bank pursues a low and stable rate of inflation.

2. Employment

It aims for a high, stable real growth and high employment rate in the economy.

3. Stability in markets

It promotes a stable financial market and financial institutions.

4. Interest Rates

A central bank’s objective to maintain interest rates.

5. Exchange Rate

The bank also tries to maintain a stable exchange rates.

To Create a Successful Central Bank

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A successful central bank needs to be independent from politics, policy makers and outside influence. It has to be transparent with its policies to maintain credibility. A central bank has to be accountable for its policies and decisions. A central bank has to be clear in communicating with financial markets & the public. This helps build trust with the public. The decision making process has to be made by a committee. There needs to be coordination of fiscal and monetary policy.

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