The concept, goals, forms and methods of monetary policy

There is market and government regulation of the exchange rate. Market regulation based on competition and the laws of value, as well as supply and demand, is carried out spontaneously. State regulation is aimed at overcoming the negative consequences of market regulation of foreign exchange relations and achieving sustainable economic growth, balance of payments, reducing the growth of unemployment and inflation in the country. Such regulation is implemented through a set of measures in the field of international currency relations, implemented in accordance with the current and strategic goals of the country, i.e. with monetary policy.

State monetary policy in countries with developed market economies usually comes down to exchange rate problems, official interventions, and gold and foreign exchange reserve management.

In a broad sense, monetary policy includes currency regulation and control, international monetary and financial cooperation, including membership in international organizations, and interaction between central banks. In a number of countries, for example, in the UK, monetary policy is not separately allocated, but is considered in the context of monetary policy.

Legally, a monetary policy is formalized by currency legislation (the totality of legal norms, governing the conduct of operations with currency values in countries and beyond) and currency agreements (bilateral and multilateral) between individual states or a group of states.

The predecessor of modern currency agreements was the Latin Monetary Union (1865-1926). Its goal was to establish a single currency of member countries, with coins of one country considered legal means of payment in other states.

Further, the events developed as follows:

1922 – Genoa, the creation of a gold and visa standard has been formalized; 1944 – The Bretton Woods Agreement enshrined the principles of the post-war currency system; 1976 – Jamaica, new monetary policy; 1979 – EMU.

Distinguish between structural and current monetary policies.

Structural monetary policy – aimed at changing long-term structural changes in the global monetary system (for example, conducting currency reforms). Current monetary policy – means the daily, operational regulation of the exchange rate, foreign exchange transactions, the activities of the currency and gold markets.

Forms of monetary policy are discount and mottoful.

Discount currency policy (accounting) is a change in the Central Bank’s discount rate aimed at regulating the exchange rate and balance of payments by influencing the movement of short-term capital and the dynamics of domestic loans (cash, prices, aggregate demand).

Maiden – a method of influencing the national currency exchange rate by buying and selling foreign currency by state bodies (devis). In order to increase the national currency, the Central Bank sells, and to reduce it, buys foreign currency.

The motto policy has the following varieties:

currency intervention (XX century); diversification of foreign exchange reserves introduction of currency restrictions; double currency market; devaluation; revaluation.

Currency intervention is the intervention of the Central Bank in operations in the foreign exchange market in order to influence the national currency in a certain direction by purchasing and selling foreign currency. It is carried out at the expense of official gold and foreign exchange reserves, short-term mutual loans of the Central Bank in national currency (“swap”).

Diversification of foreign exchange reserves is a policy of the state and banks aimed at regulating the structure of foreign exchange reserves by means of different currencies, conducting currency intervention and protecting against currency risks. Its manifestation is the sale of unstable currencies and the acquisition of sustainable ones.

Currency restrictions – are introduced by the state on operations with currency, gold and other currency values, which is reflected in foreign exchange legislation.

The double foreign exchange market – as a form of monetary policy, occupies an intermediate place between regimes of fixed and floating exchange rates. Introduced in the early 70s in Belgium, Italy, France. Its essence is in dividing the foreign exchange market into two parts: 1) the official exchange rate – on commercial operations and services; 2) market exchange rate – on financial transactions (movement of capital, loans).

Devaluation – a depreciation of the national currency in relations with foreign currencies or international monetary units. An objective basis for it is an overestimation of the official exchange rate compared to the real purchasing power of monetary units.

Relocation is an increase in the national currency against foreign currency.