At the helm of all economic activities in a country, lies the governance of its central bank. The Federal Reserve System, central banking system of United States of America was established on December 23, 1913, with the formulation of the Federal Reserve Act. The need of a central bank was realized by policy makers in the wake of erratic financial chaos in the days of the yore. (The financial mess in 1907 led the US policy makers to think of better policies to create a stable economy). It was realized quite early, especially by the US government that international participation in economic activities would form the main component of global economy. To manage the economy, that is to create more jobs and increase the national income, it was mandatory for an expert body to oversee the nation’s economic policy. The Bank of England in the UK; the Reserve Bank of India (RBI), in India; Central Bank of the Republic of China, in China; Banque de France, in France, et al, are just some of the central banks of top economies in the world.

Central Banks and Monetary Policy
The functioning of central banks in all countries have evolved in the last fifty years, as globalization has forged a new era of economic trade. Most of the central banks have overhauled their systems and have changed policies to face the global competition. In a nutshell, it can be stated that the duties and responsibilities of a central bank of a country are mostly related to price stability, creating employment, strengthening the economy, creating transparency in the financial network of national and private banks, minimizing financial risks and overseeing monetary policies. Since a central bank forms an independent apex banking institution in a country, it forms the monetary policies for bolstering development of the country. So, do you think that monetary policy affect our daily lives in any way? Well, they surely affect our purchasing power and that surely, impacts our lifestyle. Let us get into more details on how the policies chartered by the governors and directors of central banks shape our economy in general, and our lifestyles, in particular. Read the rest of this entry »