Should central banks be independent Essay Example | Topics and Well Written Essays - 1000 words

Should central banks be independent - Essay Example They all have different origins hence the difference in the roles and functions that they are expected to play. While some of them were established as a special purpose upon which the government banks were brought up to bring about order in the way that bank notes are issued, others were developed to act as sources of funding for the governments (Downes & Vaez-Zadeh 92). There are other central banks that started off as large commercial banks that dominated and subsequently were able to boost the economy by offering the monopoly rights to provide bank notes. Most of the central banks started their operation during the 20th century as central banks that held the public policy agencies to conduct the functions related to central banking. However, the bundles of functions associated with the central bank have always differed in a substantial way from one country to the other. In this paper the main functions and roles of the central banks will be analyzed and an evaluation performed o w hether the central banks should be made independent (Touffut 52). The key functions of the central bank revolve around the fact that the central bank is an agency that is expected to perform the conducts of monetary policy and provide the means through which it can be settled. In the past, they functioned as the government’s bankers, the monopoly of issuing notes, the banker’s bank, the last resort lender, controller and regulator of credit and the maintenance of external stability (Goodhart xiii). The most important function of the central bank has been linked to the role of financial stability. However, it is considered as the objective that extends or goes beyond the objectives of functions, which contribute towards financial stability. Nonetheless, it is still applicable in many countries where for example in China, it is the role of the People’s bank to ensure that financial risks are mitigated with the effort to provide financial stability