Central Bank

Topics: Central bank, Monetary policy, Inflation Pages: 10 (3422 words) Published: August 13, 2013
Background of the Term Paper

As a Part of my course, I have conducted this term paper. Our teacher, Mr. Muhammad Farashuddin has instructed me to prepare a term paper on “Central Bank Independence “. I have made a detailed analysis on the topic and the paper is submitted today- 18th July, 2012.

Objective of the Term Paper

The objective of this term paper is to bridge the gap between textbook knowledge and real life situation. I have tried to focus about the central bank independence in the world and in Bangladesh. With great enthusiasm and interest I prepared this term paper and while preparing I gathered valuable experiences. The main objectives of this term paper are as follows: ❖ Central bank autonomy around the world

❖ Importance of full autonomy in the developing country ❖ Central Bank Independence in Bangladesh
❖ Conclusion and Recommendations

This paper focuses on a broad-spectrum talk on the real life scenario of central bank independence in the world and in Bangladesh. A tough effort had been placed while the term paper was prepared and a careful study was made to analyze the information from different report and ultimate findings of the paper. Overall, this term paper is an effort to route for a better understanding for the learners of banking student.

While preparing this term paper, I have faced some problems. The main problem was time constraint. Because I have to remain busy with my own job. Moreover, during data collection I faced several problems. There is a little scope to use paper based data and statistical tools, rather the report is focused on real life analysis. I have collected this data from different report, websites and internal information of banks etc.

Framework of the Report
I have analyzed the scenario of independence of central bank in Bangladesh and all over the world. I have included the administrative and functional autonomy of central bank in Bangladesh. Introduction:

The issue of central bank independence has rapidly become the worldwide model for the organizations of monetary authorities aiming at to decrease inflation by increasing the credibility of commitments to price stability. Independent central banks, it is argued, offset unwanted output variability originated from political uncertainty and may also lead to an elimination of the inflation bias either through an optimal contract or inflation targeting mechanism, or through a reputation-building effect. However, an inflation targeting arrangement that gives instrument independence and goal independence to the central bank reduces the inflationary bias of monetary policy making. The reason for this is that if the inflation target is publicly announced, the arrangement is transparent, solves the private information problem and makes reputation more effective. It is also argued that central bank independence is the institutional solution to check the macro-economic populism i.e., opportunistic political business cycles (elected politicians have incentives to expand the money supply prior to elections to stimulate the economy and thereby engineer their re-election). However, the relationship between central bank independence and effectiveness of monetary policy can be viewed from three distinct paradigms, a) under central bank independence, it is expected that the dynamic inconsistency problem of optimal monetary policy will be solved, b) in case of conflicting objectives of economic policy, inflationary bias of the economy will be minimized, and c) an independent central bank will be emerged as a credible institutional alternative to a constitutionally stipulated monetary rule.

Central bank autonomy around the world
Central bank all over the world enjoys various notch of autonomy. In some countries the central bank has more power to both administrative and operational autonomy. However some country’s central banks power is fully restricted to...

Bibliography: ❖ The Bangladesh bank Order, 1972.
❖ The Bangladesh Bank (Amendment) Act, 2003.
❖ Financial Express
❖ The Daily Star
❖ http://www.bangladesh-bank.org/
❖ Central bank independence ,Prepared for the New Palgrave Dictionary, December 2005
❖ http://www.economist.com/blogs/freeexchange/2008/06/central_bank_independence [pic]
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