Monetary policy can be defined as a set of rules that a country’s central bank makes to control the supply of money.
It might sound like that monetary policy is handled by economists only, but its effects are realized all around.
Monetary policy is used by financial authorities to increase the rate of employment, stabilize the prices of products, and set the long-term interest rates. Consequently, it encourages economic growth and stability by increasing consumer activities. Such policies also contribute to the increase in the level of exports and decrease imports in a country, which increases the valuation of the country’s currency.
Central banks use a number of tools to implement monetary policy.
Central banks create new bank reserves to sell and buy short-term bonds in an open market. They buy assets to increase the money supply and decrease it by selling them.
Another tool central banks use is the interest rate. Nation’s banks deal with loans depending on the interest rate set by the central bank.
Public announcements about future policies also move the market, which makes it a powerful tool.
Changes in a monetary policy can be made when they seem inevitable. Typically, countries with stable economies make changes to their monetary policy after a set duration.
Every country has its own rules regarding the time to make changes to monetary policy.
Central banks have a monopoly on issuing money as they’re allowed by the nation’s law to govern according to the monetary policy.
It can’t be said with utmost certainty that cryptocurrency will soon dent the centralized banking system or affect monetary policy — only time will tell.
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