Dinosaurs monetary system


Liquidity regulation

The purpose of liquidity management is to ensure the effective functioning of the interbank money market and prevent failures of the payment system. Regulation of liquidity is a kind of continuation of currency exchange transactions boards. Adjustment of the liquid assets held by the banking sector, the monetary authorities may conduct due to interventions in the foreign exchange market. If the money market is more developed compared to the currency, the liquidity management operations are transferred to it. However, the maintenance of the principle of 100% fully ensure money issue is a must.

Which tools resorted currency board to manipulate bank liquidity?

In Argentina and Lithuania monetary authorities provide subsistence loans, and Hong Kong - the intraday loan. In all these cases, commercial banks as collateral must submit a rule provision. Usually perform the role of providing securities denominated in the anchor currency. That banks no shortage of such securities, often currency board specially produced for them currency debt. For liquidity management is also actively used reserve requirements. In Estonia, along with refinancing operations, reserve requirements play a major role in the monetary policy. From 1 July 2001, the Estonian banks can place half of reserve requirements in marketable foreign bonds. Reserve requirements are often replaced by liquidity requirements of commercial banks. For example, the government may impose exchange rate at which the cash component of reserve requirements should be 20% of the reserves.

Liquidity management tools that are accessed currency board, a lot. The choice of specific instruments in the end depends on the structural characteristics of the national financial system. Preference is given generally effectiveness of interbank money market, features of the payment system and the volatility of the liquidity position of the banking sector.

Lender of last resort

Function of lender of last resort is the cornerstone of the debate on the currency board. Modern government can function as lender. However, it was not always. During the first currency boards of the banking system was weak, and its crises are often not reflected in the real economy. The absence of any influence of banks on the economy is due to low interest monetary authorities to ensure banking stability. In today's financial system, centered on the currency board, the situation is quite different.

Thanks to the money multiplier banks are the main "creators" of money. Their failure will inevitably lead to an avalanche increase in the supply of means of payment. In order to avoid a collapse of the monetary system, currency board has to support the banking system in time afloat by providing the stabilization loan.

So, for example, in Hong Kong, Argentina and Bulgaria currency boards are allowed to lend in the presence of excess foreign reserves.

The future of currency boards

One of the most famous in the world of currency boards - Argentina - will end its existence in January 2002 as a result of the crisis. If we talk about the future of other currency boards, most of them will also soon cease to exist. Thus, the monetary authorities of Estonia, Lithuania and Bulgaria have officially announced their intention to join the euro zone. However, the currencies of the countries of Eastern Europe is prepared for a long future. Withdrawal of national currencies of the monetary will be relevant only when the country will gain a full member of the European community, and for two years after that will prove its economic stability over the other EU member states. Only then the candidates will be able to obtain the right to use the single currency. For example, replacing the Estonian kroon Euro-currency monetary authorities are planning for 2006-2007. In Lithuania, in February this year, in anticipation of joining the euro area, the euro has replaced the dollar as the anchor currency. The head of the Bulgarian National Bank in 1999, declared that the decision to move the country to the European currency adopted permanently.

Central Bank of Bosnia and Herzegovina has not declared his intention to change the brand of the euro. However, the European Central Bank have no doubt: when geographical neighbors countries join the euro area in Bosnia and Herzegovina will inevitably follow. The future of Hong Kong's currency board is also easy to predict. Time is not far when the introduction of full convertibility of the RMB and the acquisition of status will make them stable Rupee "superfluous." As a result, the map will disappear all economically significant currency board. They will remain only in a small island states.