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Central Banks

Central Banks

The World Central banks are the real powerhouses when it comes to dictating the direction that the currency markets will move. They shape the policy for whole economies and are keenly watched by traders who will try to predict their next moves.

Here follows a brief description of each of the major Central Banks and their key policy mandates.

U.S. Federal Reserve System

The Federal Reserve (Fed) without doubt is the largest and most important of the worlds central banks. It is closely watched by traders as the decisions that it makes can have sweeping effect on the markets, due to the US dollar being accountable for more than ninety per cent of all currency transactions.

The bank is run by a committee known as the FOMC (Federal Open Market Committee). This is comprised of 12 members including seven Federal reserve board governors and five presidents from the regional district reserve banks.

Key Mandate – To maintain price stability and sustainable long term growth

Frequency of Meeting – Eight times a year

Federal Reserve Bank of New York

European Central Bank

The European Central Bank (ECB) is part of the governing council of the European Union. It was founded in 1999 and decides on the monetary policy of all member states. If it comprised of six executive members and representatives from the 12 major European member states. area countries. As a central bank, it does not like to surprise the market and therefore any changes to policy are normally widely documented to the markets prior to being put into action.

Key Mandate – Like most central banks the ECB is committed to price stability and providing an environment for sustainable growth. It also looks to maintain the annual growth rate in concuser prices at less than 2%. This is due to the European Union being heavily export dependent on goods manufactured in its region.

Frequency of Meeting – Bi-weekly. However actual policy decisions are generally taken 11 times per year.

European Central Bank

Bank Of England (BoE)

The Bank Of England is made up of a nine-member committee. This is made up a governor, two deputy governors, two executive directors and four outside experts. The Bank is dependent of governmental control and there is seen as being an effective implementer of monetary policy.

Key Mandate – The BoE’s monetary policy aims to keep prices stable and to maintain a level of confidence in the currency. The BoE aims to keep inflation in check and within its target level of 2%. It uses interest rates to control the level of inflation in the economy to meet this ongoing target.

Frequency of Meeting – Each Month

Bank of England

Bank Of Japan

The Bank of Japan’s (BOJ) monetary policy committee is made up of a governor, two deputies and six additional members. The export lead nature of the economy means that the bank is particularly sensitive to to preventing a strong currency. As a result the bank is well noted for artificially selling its own currency in the market to decrease its value on the international stage and thus decrease the price of its exports.

Key Mandate – The banks aims for stability of the financial system, with a key focus on interest rates and inflation in relation to its export driven economy

Frequency of Meeting – Normally once or twice a month

Bank of Japan

Swiss National Bank (SNB)

A three person committee makes up the Swiss National Bank. Having a largely export lead economy the Swiss bank tends to be more conservative in setting it’s interest rates and is likely to focus more on the effects that rates have on it’s export potential than other factors.

KeyMandate – To ensure price stability while taking the economic situation into account

Frequency of Meeting -Four times per year

Swiss National Bank

Bank Of Canada

Monetary policy decisions within the Bank of Canada (BoC) are made by a consensus vote by Governing Council, which consists of the Bank of Canada governor, the senior deputy governor and four deputy governors.

Key Mandate – Maintaining the integrity and value of the currency. The central bank has an inflation target of 1-3%, and it has done a good job of keeping inflation within that band since 1998.

Frequency of Meeting – Eight times a year

Bank of Canada

Reserve Bank Of Australia (RBA)

The Reserve Bank of Australia’s monetary policy committee consists of the central bank governor, the deputy governor, the secretary to the treasurer and six independent members appointed by the government.

Mandate – To ensure stability of currency, maintenance of full employment and economic prosperity and welfare of the people of Australia. The central bank has an inflation target of 2-3% per year.

Frequency of Meeting – Eleven times a year, usually on the first Tuesday of each month (with the exception of January)

Reserve Bank of Australia

Reserve Bank Of New Zealand

The Reserve Bank of New Zealand (RBNZ) is unlike most other central banks in that rather than consensus by committee, decision make rests only withe the banks governor.

Key Mandate – The chief mandate of the bank is much like any other central bank in that it aims to keep price stability through the use of interest rates. An target inflation level of 1.5% tends to be the key focus of the governor whose successes is measured against the ability to maintain this target.

Frequency of Meeting – Eight times a year

Reserve Bank of New Zealand

About Satish Oraon

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