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Monetary power and its role in controlling spending

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Monetary power and its role in controlling spending

02/8/2018 12:00 am
Baghdad / Emad Al-Amara


By controlling interest rates and bank credit, monetary power plays a role in controlling the spending of economic units and keeping the value of the currency from fluctuating because of a balance of payments deficit.

Monetary policy adopts, according to specialists, a set of objectives independently of each other. To have a clear effect on the structure Economy.

Price stability

Between the academic economist d. "Monetary policy is working to reduce the impact of continuous changes in the level of prices and the attendant fluctuations in the value of money, and its adverse effects on the level of distribution of incomes and wealth and the allocation of economic resources," stressing that

"the goal of price stability of monetary priorities of the Authority to maintain the value and size Monetary trading in the economy".

Balance of Payments

"When a balance-of-payments deficit occurs, monetary policy raises the interest rate, leading to a decline in the credit of the economic authority and then its liquidity, which makes it regain its capital abroad and the return of foreign capital to the country following the rise in the local interest rate," he added.

To the rise in the size of foreign assets and improve the balance of payments and vice versa occurs in the case of surplus.

"The monetary authority seeks to influence and revive the investment environment to achieve a continuous and appropriate increase in GDP growth or average real per capita income by influencing the investment by changing interest rates that achieve growth rates in GDP," he said.

interest rates

For his part, said the academic economist d. Falah Hassan Thwaini "Monetary policy can not achieve two or more goals at the same time, for example, stabilization of prices often collide with the stabilization of interest rates, and the reduction of inflation requires a monetary policy of deflation to raise interest rates, which causes the reduction Investment".

Economic situation

"The achievement of the final goal of monetary policy necessitates taking a number of measures that require a period of time to choose them and start implementing them and achieving their results," he said.

"During the intervening period, the economic situation may become so that the measures are not commensurate with the conditions that have arisen and the goals that have been achieved".

He stressed that "the state of financial panic can undermine the monetary policy of its target if it occurs, the monetary authority should change its strategy in the event of a state of financial panic to ensure the integrity of the banking system and the flow of credit form the correct".

Deflationary policy

"If financial panic occurs for non-monetary reasons and for real reasons or individuals' expectations under a deflationary policy, this would impede the application of monetary policy," Dr. Thueni said.

"The monetary authority should pursue an expansionary policy to avoid aggravating this situation so that Financial panic by increasing the operation or making the central bank's cash reserves readily available through the discount mechanism to provide banks with liquidity to handle withdrawals and then control the panic financial crisis.

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