Policy Instruments
The main monetary policy instruments available to central banks are open market operation, bank reserve requirement, interest rate policy, re-lending and re-discount (including using the term repurchase market), and credit policy (often coordinated with trade policy). While capital adequacy is important, it is defined and regulated by the Bank for International Settlements, and central banks in practice generally do not apply stricter rules.
To enable open market operations, a central bank must hold foreign exchange reserves (usually in the form of government bonds) and official gold reserves. It will often have some influence over any official or mandated exchange rates: Some exchange rates are managed, some are market based (free float) and many are somewhere in between ("managed float" or "dirty float").
Read more about this topic: Central Bank
Famous quotes containing the words policy and/or instruments:
“U.S. international and security policy ... has as its primary goal the preservation of what we might call “the Fifth Freedom,” understood crudely but with a fair degree of accuracy as the freedom to rob, to exploit and to dominate, to undertake any course of action to ensure that existing privilege is protected and advanced.”
—Noam Chomsky (b. 1928)
“I rejoice that America has resisted. Three millions of people, so dead to all the feelings of liberty, as voluntarily to submit to be slaves, would have been fit instruments to make slaves of the rest.”
—William Pitt, The Elder, Lord Chatham (1708–1778)