Central Banks

Kanjaraj Tangtatswas

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Origins of the Central Banking System
• The Sveriges Riksbank or the Bank of Sweden, was
established in 1668, with its main function being lending
money to the government of Sweden.

• The founding of the Bank of England

(BoE) in 1694 marks the de facto origin of
central banking.

• Most emerging market economies established their central banks after

WWII.
Variations in the Functions and Structures
of Central Banks
• The roles of central banks have grown in importance as their
activities evolve over time.
• Over the last two centuries, the functions of central banks
throughout the world expanded to regulating the value of the
national currency, financing the government, and acting as a
‘lender of last resort’ to banks suffering from liquidity and/or credit
crises.
• Central banks have taken on increasing responsibilities which
required more independence from fiscal authorities and political
institutions. invested
bank
Cripin -10
1 some

• There are differences in the structure and policy tools that each
central bank adopts depending on the level of sophistication of
the banking and financial sectors.
* MisterY of finance -7 Fiscal policy
bank
p central

Goals of Monetary Policy

• Price stability (Low and stable inflation)
• High employment
• Economic growth
• Financial market stability
• Interest-rate stability
• Foreign exchange market stability
* If this 9 are stable ,
it is easy to plan !

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Case for Independence

• Political pressure would impart an inflationary

bias to monetary policy
• Political business cycle
• Could be used to facilitate Treasury financing
of large budget deficits—accommodation
• Too important to leave to politicians—the
principal-agent problem is worse for politicians

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Case Against Independence

• Undemocratic
• Unaccountable
• Difficult to coordinate fiscal and
monetary policy
• Has not used its independence
successfully

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Bank of Thailand (BOT)

• The Thai National Banking Bureau was set up in 1939 as a

department attached to the Ministry of Finance.
• The Bank of Thailand Act 1942
• The Minister of Finance is empowered to oversee the overall
affairs of the BOT.

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Bank of Thailand’s Roles and
Responsibilities
1. Print and issue banknotes
and other security
documents
2. Promote monetary stability
and formulate monetary
policies.
3. Manage the BOT’s assets
4. Provide banking facilities to
the government and act as
the registrar for the
government bonds.
5. Provide banking facilities
for the financial institutions
6. Establish or Support the
establishment of payment
system
7. Supervise and examine the
financial institutions
8. Manage the country’s
foreign exchange rate under
the foreign exchange
system and manage assets
in the currency reserve
according to the Currency
Act.
9. Control the foreign
exchange according to the
exchange control act.
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Bank of Thailand’s 2020-2022 Strategic Plan:
Central Bank in a Transformative World

Source: www.bot.or.th

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Source: www.bot.or.th
Bank Of Thailand Governor

Source: thaipbsworld.com

Dr. Sethaput Suthiwartnarueput

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Monetary Policy Committee (MPC)

• The Monetary Policy Committee (MPC) is one of the main committees of

the Bank of Thailand and is responsible for setting the monetary policy
stance.
• The MPC works closely with the staff of the Bank of Thailand in
monitoring internal and external economic conditions.
• In formulating the monetary policy direction, MPC makes assessments
and policy decisions based upon data provided by the Bank of Thailand.

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Monetary Policy Committee (MPC)

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Source: www.bot.or.th
MPC’ scope of responsibilities

1. Setting a target for the country's monetary policy, taking into account
the Government's policies and the country's economic and financial
environment;
2. Setting policy for exchange rate management under the exchange
rate regime specified under the authority of the Currency Act;
④
3. Setting necessary ummm
measures in order to achieve the goals as policies as
set out in (1.) and (2)
4. Following up on the BOT's implementation measures as set out in (3) to
ensure correctness and efficiency of those measures

In addition, the new BOT Act explicitly states that the MPC shall set a target
for the upcoming year on an annual basis, no later than December, which
will act as a guide for the government and the BOT in its objective of
achieving price stability. This target shall be reached in agreement with
the Minister of Finance, which will then require approval by the
Cabinet. The MPC is required to report monetary policy developments to
the Cabinet every 6 months.

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Other central banks around the world

• United States
– Federal Reserve System (the Fed)
• European Union
– European Central Bank (ECB)

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The Federal Reserve System
• The Federal Reserve System, also known as the
Federal Reserve bank or the Fed for short, is one of
the largest and most influential central banks in the
world.
• The Fed is an independent entity that is privately
owned by its member banks.
• The Fed is subject to oversight from Congress that
periodically reviews its activities.
• The Fed supervises and regulates the nation’s
financial institutions and simultaneously serves as
their banker.
Federal Reserve System
• The Federal Reserve System consists of
the following:
The Federal Reserve Board of Governors (FRB)
which mainly assumes regulatory and supervisory
responsibilities over member banks.
The Federal Open Market Committee (FOMC):
www

comprises 12 members— seven members of the

Federal Reserve Board of Governors, president of the
Federal Reserve bank of New York, and 4 of the
regional Federal Reserve bank presidents.
The FOMC convenes eight times a year to decide on
the interest rates and monetary policy.
Federal Reserve System
• There are 12 Federal Reserve Banks.

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Federal Reserve System

• The Federal Reserve Bank of New York plays

a special role in the Federal Reserve System.
Its district contains many of the largest commercial
banks in the United States, the safety and
soundness of which are paramount to the health of
the U.S. financial system.
Its active involvement in the bond and foreign
exchange markets.
Chairman of Federal Reserve Board

Jerome Powell

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Federal Open Market Committee
(FOMC)

• Meets eight times a year

• Consists of seven members of the Board of
Governors, the president of the Federal Reserve Bank
of New York and the presidents of four other Federal
Reserve banks
• Chairman of the Board of Governors is also chair of
FOMC
• Issues directives to the trading desk at the Federal
Reserve Bank of New York
The Eurosystem

• The Eurosystem as the central banking

system of the euro area comprises:
the ECB, and
the NCBs of the 19 EU Member States whose
common currency is the euro.
• The Eurosystem is a sub-set of the ESCB.
• The Eurosystem, as a team, carries out the
central bank functions for the euro area.
¢ National central banks

• The ECB and the NCBs jointly contribute to

www

attaining the common goals of the

Eurosystem.
Source: www.ecb.int 22
European Union

Lk’;k’k’lk’

Countries using Euro or a

part of Eurosystem
Austria Latvia
Belgium Lithuania UK .

bank of England
Cyprus Luxembourg
-

pound
-

Estonia Malta
Finland The Netherlands
France Portugal Switzerland
d lyse their own
Germany Slovakia currency )
Greece Slovenia
Ireland Spain
Italy

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The Eurosystem

• Main tasks → for all country

are the same !!

Monetary policy
Foreign exchange operation
Promote smooth operation of payment
Hold and manage foreign reserves

Source: www.ecb.int 24
European Central Bank
• Responsible for conducting monetary policy
for the euro area
urvrvw

• Central banks from each country play similar

role as Fed banks Thai ; called BAHTNET -
- real time gross settlement

• Executive Board more govern er

President, vice-president and four

other members
Eight year, nonrenewable terms
• Governing Council = BOT Cin Thai )

ECB run buy Governing council .

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President of the ECB
BOT
-
independence for certain extent
but still have to to Govt
report .

& ministry of finance

desired their own money policy

but approve by govt .

Christine Lagarde

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