Central Banks and Monetary Policy



There are four main objectives of the central bank such as stable inflation, high and stable real growth, stable interest rates and stable exchange rates (Almoayed Group, 2007).&nbsp. It will also address how the central bank monitors the money supply and the numerous tools of the monetary control will also be discussed in this study. The most significant part of this research paper is to study the association between price stability as well as other goals of the central bank. The behavior of the monetary aggregates, inflation as well as output in the context of UAE will also be discussed in a detailed way in this study. Last but not the least, the research study will endeavor to review the performance of the UAE central bank and discussion regarding interest rate as well as exchange rate stability in the UAE will be explained in brief. 1. Discuss briefly the five objectives of central banks. In their pursuit of maintaining price stability, central banks are said to manage the money supply process. The central bank in the United Arab Emirates (UAE) was set up in the year 1980 and is considered to be the chief regulatory as well as the supervisory body with regard to the overall banking industry. The central banks of the UAE are believed to exert increasingly stringent vigilance on the financial institutions. Apart from this, the main objectives of the central banks operating in the UAE region are principally concentrated on issuing currencies, suggesting the government regarding the monetary as well as the financial issues, acting as the last resort lender for the other member banks and likewise, it is held to be responsible for managing the supply of money in the market and ascertain the way an economy operates. The initial objective of the central banks have been identified as being the responsible authority is to set up and preserve financial stability within the economy or rather stable real growth. It is since central banks are known to possess quite inclusive information regarding the risks in terms of financial stability with the assistance of its research as well as surveillance activities. The second objective of the central banks has been stated as the exercise of its essential roles for promoting and monitoring the reliability of the various financial institutions, particularly the banks since they are known to enjoy regulatory as well as supervisory control over those institutions. The third main objective of the central banks is the application of their respective tools to make certain of the prevalence of price stability such as the functions related to the open market and the interest rates. The tools are regarded as the effectual instruments for the purpose of manipulating financial stability through the intermediary procedures along with manipulating the aspect of demand with regard to the economy (Almoayed Group, 2007). The fourth objective of the central banks is to discharge its role as the ‘lender of the last resort’.