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 Bankers
Famous quotes containing the words policy and/or instruments:
“Men must learn now with pity to dispense,
For policy sits above conscience.”
—William Shakespeare (1564–1616)
“Being the dependents of the general government, and looking to its treasury as the source of all their emoluments, the state officers, under whatever names they might pass and by whatever forms their duties might be prescribed, would in effect be the mere stipendiaries and instruments of the central power.”
—Andrew Jackson (1767–1845)