Central Banking Reforms Advance in Baltic and cis Countries

On May 13-14, 1996, the IMF arranged the ninth coordinating, meeting on central banking technical assistance to the Baltics and the Commonwealth of Independent States central banks. The meeting was held at the Bank for International Settlements in Basel.

Reforms in the monetary, exchange, and banking areas in the Baltic and the CIS countries have sought to achieve a market-based determination of interest rates and exchange rates, to control banking system liquidity through indirect instruments, and generally to foster the use of markets for central banking operations. Implementation of market-based arrangements for monetary control has required careful coordination of reforms to foster money and foreign exchange markets and to strengthen key functions of central banking, including critical actions in the payment system, accounting, and bank supervision. Reforms have been designed to bring about macroeconomic stabilization as well.

The participants of the meeting stressed that in most countries, following the introduction of new laws, the central bank has de jure independence from political authorities. It has the authority to formulate and implement monetary policy and to implement foreign exchange policy. Most countries have liberalized deposit and lending rates and rely mainly on indirect instruments, although the use of market-based instruments is limited.

Interest rate and exchange rate management is typically governed by a ceiling on net domestic assets of the central bank and a floor on net international reserves. Many countries in the regions have developed money, securities, and foreign exchange markets.

Monetary management is exercised, primarily, through reserve requirements, refinance facilities, and intervention in the foreign exchange market and, to a limited extent, through auctions of treasury bills and central bank papers.

Direct central bank credit to the government, although decreasing, remains an important source of reserve money creation in some countries. Public debt management is based on treasury-bill auctions, which are being developed in most countries; secondary market activity typically remains limited.

Foreign exchange operations and the management of the exchange rate are in most cases conducted through an interbank auction arrangement, although dealing outside the auctions is increasingly prevalent.

In the payment system, central banks provide most clearing and settlement services and have streamlined operations to meet user needs.

Participants agreed that the causes of bank insolvencies had typically been a combination of poor lending decisions, inadequate licensing and supervision procedures, and structural changes in the public enterprise sector.

Participants at the May meeting recognized the dramatic advances made by most central banks in the region in introducing market-based instruments of monetary and exchange management and in fostering money and exchange markets. They stressed, however, that most countries have new work ahead of them in restructuring their banking systems.

Words you may need:

Англійський варіант	Російський варіант	Український варіант
Bank for International Settlements	Банк международных расчетов	Банк міжнародних розрахунків
de jure	де-юре	де-юре
central bank	векселя центрального банка	векселя центрального банку
prevalent	распространенный	розповсюджений
settlement services	услуги по расчетным операциям	послуги по розрахункових операціях
streamline	совершенствовать, модернизировать	удосконалювати, модернізувати

Ex. 16. a) Read the text quickly for the main points.

Money is as hard to measure and define as it is to control. Money is graded according to its LIQUIDITY - notes and coins being completely liquid, whereas some kinds of bank deposits become spendable only after notice to withdraw them has expired.

In Britain:

• Ml is notes and coins in circulation, plus sterling sight deposits (that is, those withdrawable without notice) held by the private sector.

• Sterling МЗ (МЗ) is Ml plus sterling time deposits (those requiring notice of withdrawal) of the British private sector, plus all sterling deposits of the British public sector. To get M3, add the foreign currency deposits of all British residents.

• PSL2, short for private sector liquidity, is notes and coins in circulation; all sterling deposits (that is, including time deposits and certificates of deposit); other money market instruments (for example, treasury bills, bank bills and local authority debt held by the non-bank private sector); building societies' share and deposit accounts, and some national savings securities.

The United States uses three measures:

•Ml is defined as currency in circulation, travellers' cheques, demand deposits of the private sector at commercial banks, automatically withdrawable deposit accounts at banks and thrift institutions, credit union share draft accounts, and demand deposits at mutual savings banks.

• M2 is Ml plus savings and small-denomination time deposits, overnight deposits at commercial banks, overnight Eurodollars held by American residents (other than at Caribbean branches of Fed member banks) and balances of accounts with money market funds.

• M3 is M2 plus large denomination time deposits, companies term repurchase agreements at commercial banks and savings and loan associations, and money markets funds held by institutions.

Based on: The Pocket Economist

Words you may need:

Англійський варіант	Російський варіант	Український варіант
measure	группировать, классифицировать	групувати, класифікувати
grade	измерять	вимірювати
spendable	тот, который может быть истраченным	той, котрий може бути витраченим
notice to withdraw (the deposit)	уведомление о снятии вклада	повідомлення про зняття внеску
sterling sight deposit	Вклад до востребования в фунтах стерлингов	Вклад до запитання у фунтах стерлінгів
PSL-private sector liquidity	Депозитный сертификат	Депозитний сертифікат
certificate of deposit	ликвидность частного сектора Великобритании (широкий показатель денежной массы в обращении)	ліквідність приватного сектора Великобританії (широкий показник грошової маси в обігу)
building society	строительное общество	будівельне суспільство
travellers' cheques	дорожные чеки	дорожні чеки
share draft account	чековый паевой счет	чековий пайовий рахунок
mutual savings bank	взаимно-сберегательный банк	взаємо-ощадний банк
overnight Eurodollars	суточные евродоллары	добові євродолари
money market	взаимный фонд денежного рынка	взаємний фонд грошового ринку
repurchase agreement	соглашение о продаже и обратной покупке	угода про продаж і зворотну покупку
savings and loan association	ссудо - сберегательная ассоциация	позико - ощадна асоціація

b) Reread the text more carefully to complete the sentences below:

1. Money is graded....

2. Notes and coins....

3. Ml is....

4. Private sector liquidity is notes and coins in circulation plus ....

5. Sterling M3 is Ml plus....

6. In the United States Ml includes ....

7. M2 is Ml plus....

8. M3 is M2 plus....

119