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8/7/2019 Seminar In Economic Policy
http://slidepdf.com/reader/full/seminar-in-economic-policy 1/23
SEMINAR IN ECONOMIC POLICY
Presentation Topic
Implications of CentralBank Autonomy for
the Developing World.
Presented by:
Hina Muhammad Yaqoob
5837
8/7/2019 Seminar In Economic Policy
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PRESENTATION FORMAT
Brief Intro to the Authors
Introduction to the State bank
Relationship with the government
Central bank autonomy theory
Implications of central bank autonomy
Conclusion
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Excerpted from the book
Money and banking in Pakistan
By: S.A Meenai
Revised by : Javed . A Ansari
Presentation from chapter 13
8/7/2019 Seminar In Economic Policy
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A UTHORS· INTRO
S.A Meenai
Former deputy governor of the state bank of
Pakistan and Vice President of the IslamicDevelopment Bank Jeddah.
Member of several national commissions andrepresents Pakistan at a number of international
conferences
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A UTHORS· INTRO
Javed A Ansari
Held different posts at United Nations Industrial
Development Organization, United NationsCentre on Transnational Corporations, National
Bank of Pakistan and Allied Bank of Pakistan.
Presently he is dean and professor of Economicsand Finance at the College of Business
Management, Karachi and advisor to the
Federation of Pakistan Chambers of Commerce
and Industry.
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STATE BANK OF PAKISTAN
Central Bank of the country
Objectives:
Regulate the banking system.
Operate an independent monetary policy.
Set limits on government borrowings from the State Bank.
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STATE BANK OF PAKISTAN
Amendment act of the 1956
´while the state bank may advise the government,
the government may not longer advise the state
bankµ
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CHRONOLOGICAL HISTORY OF STATE
BANK
1948-1956 -monetary stability.
1956 ² 1972 -concerned with stimulatingdevelopment. promoting long term investment inagriculture and industry.
1974 state bank·s operational mandate wasradically changed.
1988-lost control over money supply. Creditplanning abandoned, mounting public debt,
uncollectible bank debt. In early 2000-inflow of foreign resources, rupee
stabilized and interest rates fell. Consumerfinancing soared and fixed investment growthstagnated.
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DEC 2005- severe inflationary pressures
in FY 2008 -growth surged and several major
banks faced a severe credit crunch. Foreignreserves were halved and during July-November
2008 the rupee depreciated by almost 25%. A new
medium term agreement was signed with the
IMF.
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RELATIONSHIP WITH THE GOVERNMENT
Formally the government exercises control over
the state bank.
appoints both the governor and deputy governors
nominates all the directors.
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8/7/2019 Seminar In Economic Policy
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EXAMPLES OF INCREASING CENTRAL BANK
AUTONOMY
During 1993 -1999 the legislative framework forenhancing state bank autonomy had been put inplace. SBP governor Yaqub appointed ArthurAndersen a British consultancy to redesign the
bank and branch supervisory.
In 1999 appointment of Ishrat Hussain. exemployees of global agencies were appointed asSBP officials
in late 2008 retaining an IMF nominee asgovernor of the state bank and curtailinggovernment borrowing from the SBP
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IMPLICATIONS FOR STATE BANK
AUTONOMY
The IMF and the world bank placing an
increased emphasis on financial sector reform in
developing countries.
enhanced central bank autonomy is a means for
imposing the authority of international financial
markets.
reducing their capacity to resist subordinated
integration.
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THEORY OF CENTRAL BANK AUTONOMY
Central objective pursued by neo-classical
monetary theory is to eliminate inflation.
It becomes completely focused on the objective of
offsetting and destabilizing capital inflows and
outflows
Central bank independence has been found to
reduce inflation in industrialized countries only.
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QUESTIONS UNANSWERED
The theory cannot answer the following questions
Why the sole objective of monetary managementbe price stability rather than equitabledistribution of wealth?
How can state bank be reconciled withdemocracy? accepting autonomy means accepting
dictatorship of technocrats.
Why is international financial instability notbeing reduced despite increasing autonomy?
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IMPLICATIONS;
Central bank should be a banker·s bank:
Principal creators of money are the deposit
taking banks.It must act to prevent the crises that emerge if
expectations remain massively unfulfilled
the scope level and form of the activities are
circumscribed by SB·s commitments to continuedcommercial bank solvency and profitability
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THUS,
In a mature capitalist system is it the profit
maximizing deposit taking institutions which
rule. The central bank is merely an instrument
for making this rule possible
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CENTRAL BANK IMPLICATIONS
An instrument for the purpose of transfer of
sovereignty from the third world national
governments to the issuers of hard currencies
and international financial markets.
It ensures that this country will not be able to
pursue policies which undermine the strength or
limit the scope of dominance of the hard
currencies issuers ( especially the US).
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THUS,
The autonomous central bank becomes an
instrument for imposing the will of the dominant
political forces within the metropolitan states
and market systems of the metropolitan
countries themselves.
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CENTRAL BANK AUTONOMY IMPLICATIONS
The central banks of highly developed countries
are normally less autonomous than central banks
of countries which do not issue hard currencies.
This is because the viability of the global
financial system depends crucially upon the
political stability and continued dominance of the
issuers of hard currencies especially the United
States.
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CENTRAL BANK AUTONOMY IMPLICATIONS
Disappointing experiences with the Euro shows thatwe are nowhere near the development of a worldcurrency or a global lender of last resort despite thecontinuing weakening of the dollar, the supremacy of the US dollar is as yet unchallenged
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THUS,
A safety mechanism:
They act on behalf of the American federal
reserve and of international financial markets
and continue to function as shock absorbers and
turn their countries into places where riskierexperiments can be undertaken with relative
immunity for global capital.
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CONCLUSION Banking sector reforms focused on enhanced central bank
autonomy have now become a key feature of world bank andIMF structural adjustments packages
The SBP needs to be autonomous within the government andnot from the government.
A country which accepts an autonomous central bank isessentially a country that is accepting monetary slavery. A country cannot progress if it·s a slave to other countries.