Case uitwerking
importance and political power of central bank
- Instelling
- 123 University
the paper elaborates the importance of central bank, its political power in a country and control of economic crisis
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The central bank's first importance in the global economy is ensuring economic stability in priceand foreign exchange, enhancing international trade. For instance, an increase in domestic prices
results in imports increase and a decline in exports. The central banks are indispensable and
valuable for maintaining stability within the country's economy. It maintains the stability of both
the price and foreign exchange via the exercise of effective and proper control over the nation's
total money supply (Agarwal, 2015). It has already been mentioned earlier that one of the
significant central bank roles in currency regulation. It facilitates the issue of coins and cash in
the economy by placing them in the circulating after being manufactured by government mint
(Agarwal, 2015). Economic stability is essential in both developed and underdeveloped world
economies in promoting swift economic growth. Economic stability enhances international trade,
a critical aspect of the global economy, ensuring the effective flow of imports and exports.
Therefore, there are no other institutions besides the central banks that are competent enough in
maintaining this general economic stability. An excellent example is the European Central bank
that has maintained price stability through controlling the EU's money supply. Also, the ECB
manages the eurozone's overseas currency reserves alongside the selling or buying of currencies,
balancing exchange rates. It helps in maintaining foreign exchange stability (European Union,
2020).
The second importance of central banks in the global economy is employment creation. The
central bank has played a significant role in reducing the high global unemployment either
directly or indirectly. Its direct contribution to the creation of employment includes providing
jobs to its staff and management. For instance, the European Central Bank was established 22
years ago has a workforce ranging between 1001 to 5000 workers (Glassdoor, 2021).
Considering that almost every nation in the world has its Central Bank, these institutions employ
many people. It is an excellent contribution in reducing the global unemployment rate that is
increasing every day. According to Development Aid (2020), the 2019 global unemployment
rate amounted to 5.4%. This high unemployment rate puts the global economy at risk with a high
number of dependency. Therefore, Central Banks offering such a significant number of people
with employment sheds some light on the global economy's future. Also, the Central Bank
indirectly employs several ways. First, through the expansion and creation of financial
institutions in the undeveloped nation, more workforces are needed to perform the duties that
come along with such setup. It is to improve the underdeveloped country's credit system and
currency (Samiksha, 2014). Typically, central banks increase interest rates to avoid inflation and
slow growth. The lower interest rates spur growth, consumer spending, and industrial activity. In
this manner, they regulate monetary policy to steer the nation's economy and attain economic
goals like full employment (Segal, 2020). It is the reason that the global economy requires
Central Bank to resolve the unemployment issue.
Considering the current global economic situation, Central Banks can serve as the last resort's
lender to troubled governments (Steinbach, 2016). The Covid-19 crisis and its containment
measures have forced the global economy into a deep contraction. The World Bank had
forecasted that the global economy would drop by 5.2% by the end of 2020, which would be the
deepest recession after the Second Global War, with the economy's most considerable fraction
experiencing a decrease in per capita outcome since 1870. The blow is most brutal within nations
where the crisis has been severe, especially where there is a deep reliance on external financing,
global trade, commodity exports, and tourism (The World Bank, 2020). As the situation worsens
in the future, many institutions, banks, and governments will run out of options to get loans. At
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