Design of a New Central Bank Essay

Introduction

The most fundamental role of a central bank is to efficiently and effectively check the monetary value to enhance a stabilized price. What's important is how the central bank should be designed. Therefore very critical issues should be put into serious consideration when starting a new central bank. The central bank institutional design will be very critical in ensuring a successful accomplishment of the various roles that it plays. The paper will, therefore, look at two institutional features to adopt when designing the Federal Reserve System and the ECB to ensure maximum output.

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The Federal Reserve System

The Federal Reserve System was created in 1913 to serve as a secure, manageable, and fixed monetary and financial system (Wells, 2017). It is the central bank of the United States. The system has continuous spread over time to reach more citizens. Two institutional design features remarkably about this system that can be adopted to design a new central bank are as follows:

A Decentralized System of Reserve Banks

The federal system is divided into 12 reserve banks in the 12 districts partitioned (Epstein & Schor, 2019). This is a key feature that can be picked out when designing a new central bank. The reserves banks help reach a lot of people. The government will market its securities to a wider range of citizens. It's also a huge way of investment and helping out to handle payments by the treasury and managing the cash. With the decentralization, thorough research can be conducted in the small geographical regions managed by the reserve banks. This gives a lot of insights on how to go about the economy of the country. With the inclusion of these design features in the creation of a new central bank, the above benefits can be realized and boost the monetary value.

The Federal Open Market Committee

Literally, it is composed of the board of governors and the 12 reserve bank presidents. They are responsible for making and oversight of the monetary policies. The policies they create are meant to ensure more fixed stable prices and economic boosting. They meet regularly to ensure the policies and economies are at right positions. This feature incorporated into the design of a new central bank will bring on board all the above benefits. What's not working will be easily slushed out and what's boosting the economy can be highly apprehended. A thorough update will always be possible, and policies that are not in order easily put aside. The quality of loans and interests will easily be managed to improve the economy.

The ECB

It is the European central bank. Its main role is to ensure stable prices hence economic boosting and more job opportunities. It manages the euro and keeps the European Union economic and monetary policies (Kang, 2015). The ECB has played lots of outstanding activities in its structure that have been handy in maintaining a stable market price and euro maintenance. Two amazing features that can be picked in the design of a new central bank are as follows:

Governing Council

This is well composed of the executive board of the ECB and the governors of the participating member countries central banks.as their name suggests, their roles are to govern the monetary policies of their areas. Their basic role is making final decision on the ECB behalf. They monitor all the finer details of the policies in the Eurozone. The strong coordination this body plays is making the whole ECB magical. The regular monitoring and picking of the finer details make these features easily to be adapted into the creation of a new central bank.

General Council

This is composed of the ECB president, vice president, and all the governors of participating countries. They partake more of advisory and coordination roles.they monitor what trends are going on and what should be pushed out and what more needs to be added. With their well-calculated coordination, the euro can be stably maintained. These feature needs to be surely considered in design of a new central bank. With good coordination and proper advisory committee, the new central bank will have the best way of stabilizing monetary value. And I believe where there is proper coordination success of all monetary projects is likely to be realized

Conclusion

In summary, designing a central bank is key role that requires proper consideration because of the major function it will serve for the country. Proper regulation of monetary policies of a country therefore will call for a well-design central bank. The features that should be included in a central bank may vary from one country to another, which would be dictated policies of that country. Therefore, there should be the existence of some major factors that need to be understood to come up with the appropriate features to be included in a central bank of a given country

References

Epstein, G., & Schor, J. B. (2019). The federal reserve-treasury accord and the construction of the postwar monetary regime in the United States. Chapters, 116-157.

Kang, Y. D. (2015). Policy Responses of the ECB in Managing the Euro Crisis and its Evolutionary Role. KIEP Research Paper No. World Economy Update-15-12.

Wells, D. R. (2017). The Federal Reserve System: A History. McFarland.