Many people believe that central banks should conduct an active, interventionist monetary policy even though most countries are abandoning other forms of state intervention in their economies, such as price controls, income policies, and industrial planning. These and other forms of intervention, such as agricultural policies and state ownership of business enterprises, waste economic resources and distort markets.
Monetary policy, which represents government intervention in the marketplace for credit, exhibits the same negative effects. The time has come to challenge the need for monetary policy as practised by central bankers (often with finance ministry guidance). The financial markets, operating under appropriate tax and structural policies, will produce far greater price stability and smoother economic growth than central bankers can.
Some people still believe that controlled growth of the money supply will minimise inflation. In fact, the quantity of money in the industrialised nations today is essentially demand-driven. Currency, a key component of the money supply, is demand-driven when people can easily exchange unneeded currency for interest-bearing financial assets, such as bank deposits and bonds. Currency-driven inflations occur only when governments finance their deficits by paying their obligations in currency that cannot be converted easily into other assets.
Bank deposits, the main component of the money supply in the industrialised countries, are demand-driven as well. This demand reflects the willingness of individuals and businesses to provide credit to the economy in which they operate, versus investing in real assets or moving funds to other countries.
Reserve requirements on bank deposits, still a favoured monetary policy tool of some central bankers, do not restrict bank lending.
As a practical matter, monetary policy in the industrialised world today essentially takes the form of announced official rates for lending to banks and central bank "steering" of short-term rates.
In effect, civil servants, called central bankers, tell participants in the highly competitive and increasingly internationalised financial marketplace what they, the civil servants, believe short-term interest rates should be.
The credit markets do not differ from other markets. Interest, like any other price, should clear the market at a rate that balances supply with demand.
Words you may need:
interventionist policyинтервенционалистская политика
abandonv отказываться от чего-л.
distortv искажать
exhibitvпроявлять,показывать
demand-drivenопределяемыйспросом, зависящий от спроса
interest-bearingприносящий процентный доход
currency-driven inflationинфляция, являющаяся следствием объема валютных средств
convertvконвертировать
versusprep против, в сравнении с
"steering"n управление, руководство
civil servantгосударственный служащий
credit marketрынок кредитов
to clear the market(зд.) регулировать рынок
d) Say why the CBR is interested in the development and improvement of the payment system of Russia.