Evolution Of The Central Bank Essay Research

Evolution Of The Central Bank Essay, Research Paper

Final Paper

Evolution of the Central Bank

An important idea that the revolutionary United States originated is the separation of powers. That idea applies not only to a nation.s government but also her central banking system. Like the government itself, a central bank requires autonomy from the government while exercising influences on each other. The complementary effect leads to a successful national economy. In analyzing the history and development of the Bank of England, the Bank of Japan, and the United States Federal Reserve, one understands the necessary elements and their contributions to the evolution of central banks.

The oldest central bank is the Bank of England. Founded in 1694, the Bank of England.s structure reflects its age and history. By an Act of Parliament, the Bank of England opened with the Bank of England Stock which represented the beginning of the Funded National Debt. Nineteen bankers comprised the Bank.s first staff. Its initial objectives were to: issue notes for deposits, act as the banker to the Government, and manage government securities (Bank of England). As the forerunner for central banks, the Bank of England.s original tasks and structure were fundamental. However, due to various historical events, the Bank of England has undergone a number of reforms since its establishment.

Prior to this year (1998), the Bank Act of 1946 gave the English government statutory power over the Bank. The Bank of England Act 1998, effective June 1, 1998, altered the Constitution and the Court of Directors. responsibilities. Before this reform, the Bank could only make recommendations on monetary policies (Mishcin 405). The chancellor of the Exchequer (equivalent to the U. S. Secretary of the Treasury) decided on raising or lowering interest rates. The 1998 Act weakened the monarchy.s control over the central bank and formed the current structure and obligations.

The Bank of England consists of the Court of Directors which in turn contains two subdivisions, the Monetary Policy Committee and the Committee of the Court. The Crown appoints the Court of Directors. Governor, two Deputy Governors, and sixteen Non-Executive Governors (Bank of England). The executives serve five-year renewable terms while the Directors serve three year renewable terms (Bank of England). The Chancellor of the Exchequer designates the Chairman of the Committee of the Court and the four economists of the Monetary policy Committee (Bank of England). The sixteen Non-Executive Directors form the Committee of the Court. The Monetary Policy Committee, a more separate entity than the Committee of the Court, comprises the Court.s Governor, the two Deputy Governors, two Bank Executive Directors, and the four experts assigned by the Chancellor (Bank of England).

Each sector of the Court maintains separate responsibilities which, to an extent, balances influence and authority. The Court of Directors meets at least once a month to manage non-monetary policy affairs. Such affairs include determining the Bank.s objectives and strategies, guaranteeing positive effects from Bank functions, and efficiently allocating the Bank.s resources (Bank of England). The Committee reviews the Bank.s performance, regulates its financial management, and determines the Governor.s and Deputy Governor.s salaries (Bank of England). The Committee also checks the performance of the Monetary Policy Committee (Bank of England). The Non-Executive Chairman leads the Committee and the Court in case of the Governor.s absence (Bank of England). This recent restructuring of the Bank of England signifies a trend towards liberalism. Other banks, such as the Bank of Japan, also follow this trend originated by the United States. banking system.

A highly influential central bank in the Asian market is the Bank of Japan, or Nippon Ginko. During the Meiji Restoration, the Japanese established their Bank to avoid severe economic struggles in 1882 (Bank of Japan). The Bank of Japan was not originally independent of the government, as ultimate power belonged to the Ministry of Finance. However, as with the Bank of England, political and economic changes have translated into banking changes. Presently, the Bank of Japan enjoys a substantial independent practice.

The Bank of Japan Law, promulgated on June 11, 1997 and effective April 1, 1998, describes the Banks. organization and powers. Leadership of the Bank resides upon the Policy Board and its nine members. The Cabinet appoints the Governor, two Deputy Governors, and sixteen Deliberative Members (The Bank of Japan Law). The Governor and Deputies hold five-year renewable terms who (The Bank of Japan Law). The entire Board elects one of them to the Chairman position (The Bank of Japan Law). The Cabinet also appoints three or less Executive Auditors for four-year terms (The Bank of Japan Law). The Board recommends six or less Executive Directors, four-year terms, and a few Advisors, two-year terms, whom the Minister of Finance ultimately determines (The Bank of Japan Law). The Governor then declares the Board.s staff. This new structure reveals progression from the older, inefficient one.

As with other central banks, the Bank of Japan maintains the function of the nation.s economy. The Policy Board.s missions and activities include: the issuance and management o