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  Central Bank Autonomy: - why, what and how? – Ahmed A.K.N 1997  Why central bank should be autonomous? The main purpose for which central bank autonomy is advocated is maintenance of pricestability. Price stability is sine qua non of any sustainable long term economic growth anddevelopment. But price stability can not be maintained if central bank is not allowed tovary the volume of money and is not enabled to refuse, when needed, to finance the budget deficit of the overnment concerned. !onetary control and monetary instrumentsto be used to maintain price stability should therefore be freely used by central bank without feer and favor and without being constrained to serve any other purpose of overnment however laudable and important that may be. What central bank autonomy means #There are many attributes of central bank autonomy #Whether it can refuse credit to overnment#Whether it can meet its e$penses without depending on overnment#Whether its board of directors can function independently#Whether overnor is independent in following monetary policy#Whether the central bank is free to choose its monetary instruments#Whether central bank is free to regulate banking system%& 'entral bank in developing country has to be more than a mere bankers( bank. )t hasto be the voice of conscience to the overnment. . )t has to be a friend, philosopher andguide to banks. )t has to attain commanding height, so that it can navigate through shoalsof political vicissitudes by means of its own compass * compass of high degree of  professionalism.+ * &..- &hmed. ow /uropean central bank has the following broad features * 0.'entral bank credit to overnment is entirely discretionary  1.2nly indirect credit is permitted 3through acquisition of overnment securities bycentral bank from a third party4. 5.)ndirect credit is unconstrained6.-ational Parliament have no direct involvement in monetary polity7.overnment deposits at the central bank are unconstrained8.'entral bank may act as overnment fiscal agent.   Md. Abdu !amad !arker #ontroll$n% money u&&ly throu%h reer'e money $n Ban%ladeh. 1997  'hanges in money supply have multidimensional effect on the macroeconomic variablesand therefore it needs to be prudently managed. )ndirect monetary management throughreserve money program ensures variation of money stock without distortionWith the initiation of P9:P, Bangladesh Bank has introduced this method of indirectcontrol and through auctioning of Bangladesh Bank bills and overnment treasury billsand the ob;ectives of monetary policy are being tried to be achieved. owever due to e$istence of a number of bottlenecks such as underdeveloped moneymarket, narrow security base, absence of secondary market for the transaction of security, prescription of :<9 for banks, the progress toward this direction is very little. )f these obstacles can be removed and overnment deficit financing program can be precisely determined, the %9eserve !oney Program+ might be very useful method of controlled variation of money supply which will be largely helpful in ensuringmacroeconomic stability of the country. 9elationship between money supply and reserve money 9! = ' > T > 9 ' = 'urrency outside bank T = Till money of eposit !oney Bank 9 = reserve of eposit !oney Banks with central bank ! = 30 > cu4$9!@3re > cu4 ! = mm $ 9!'u = currency deposit ratio9e = reserve deposit ratio  ! = money supply!m = money multiplier. )n Bangladesh the ob;ectives of monetary policy are tried to be achieved throughcontrolled variation of broad money and total domestic credit within the framework of monetary program, where 9! is the operating target. emand for 9eserve !oney emand for 9eserve !oney is estimated on the basis of targeted e$pansion of broadmoney assuming a fairly stable money multiplier. This targeted demand for reservemoney is then compared with actual supply. This approach is e$plicitly related to theanalysis of Balance :heet of Bangladesh Bank. Arom the B@: of Bangladesh Bank thesupply source of reserve money can be presented in a form9! = net credit to government > credit to public and private sector > credit to depositmoney banks > other assets 3net4 * Bangladesh Bank bills. )n principle, although, Bangladesh Bank tries to equilibrate the supply of 9! with itsestimated demand through variation of -et omestic &sset and -et Aoreign &ssets, butin practice, due to limitation to vary -A&, it tries to do so basically through the variationof -&. Bangladesh Bank can directly affect the supply of 9! through the supply of credit to overnment Treasury Bills or Bonds or using the other instruments.  An analy$ o( monetary a%%re%ate $n Ban%ladeh 1977 – 19)7* - +ab$bullah Bahar  The effectiveness of the central bank(s policy in controlling money supply depends on its ability to determine the monetary base and the stability of the money multiplier. Bangladesh bank could set reserve requirement. :ome element of money multiplier like e$cess reserves and currency ratio depend on the behavior of the scheduled banks and in the public which are not directly amenable control by the Bangladesh bank. overnment policy in respect of fiscal deficit, has important effect on monetary base. There should be proper and meaningful cooperation between the monetary and the fiscal  policy, if the general economic conditions in the country are not abnormal so that money multiplier shows a fair degree of stability, then the Bangladesh bank will be able to e$ercise sufficient measure of control on monetary policy.


Jul 23, 2017
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