On the other hand, if a central bank emphasizes gold too much, it could destabilize Plan A.Ĭentral banks have a hard time finding a balance in how transparent to be about gold. Especially central banks that issue reserve currencies. On one hand, a central bank needs gold reserves to underpin confidence in its balance sheet. As monetary instability has been mounting for years, central banks are forced to become more transparent.Ī central bank’s monetary gold can be viewed as its “Plan B.” If, for example, a central bank fails to control price stability through monetary policy (“Plan A”), it can peg its currency to gold to restore stability. Transparency is one of the means for a central bank to gain credibility. If credibility is lost, a central bank can close shop. Central Banks, Credibility, and TransparencyĬredibility is a central bank’s most valuable asset.
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