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HRCECS83 744403: Central Bank Independence and the Conduct of Monetary Policy: Perspectives on South Africa - Report Writing Assignment Help
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Report Writing Assignment
The main aim of a research proposal is to show that you have a clear idea of what you want to do and how you want to go about doing it. In that regard, you broadly succeeded. The main weakness is that you have hardly done any reading on the topic.Table of Contents
- Introduction: Context and Background
- Problem Statement
- Objectives
- Research Question/Hypothesis
- Research Method
- Preliminary Literature survey
- Expected outcomes and significance
- Scope and delimitation
- Section overview
- References
Introduction: Context and Background
The Central Bank forms an integral part of the financial and economic system. It is They are usually owned by the government whereas some operate independently and are mandated with certain duties to fulfil. These include, but are not limited to, creating cash reserves for the banking systemprinting money, operating monetary policy, being a lender of last resort and ensuring the stability of financial system. The independence of the Central Bank has garnered a lot of attention in the past and till to day still attracts a lot of attention, both from policy makers and researchers of whether is it still relevant in the modern economy. It has been commonly argued that an independent central bank leads to increased monetary stability. The debate of the relevance of the independence of central banks is still ongoing, – we saw during the course of last year that South Africa’s Public Protector, Busisiwe Mkhwebane issued a controversial report of whether ABSA unduly benefited from the bailout of Bankorp granted by the South African Reserve Bank (SARB) of which she requested that the bank repay the R1.125bn bailout. Further to that, the protector filed a court interdict with the High Court to stating that the constitution must be changed to amend the mandate of the SARB to be more ‘transformation led’. The central bank follows a mandate of a monetary policy that is centred on the inflation-targeting framework. Should it have been changed the mandate would be “Real economic transformation in South Africa needs to be driven by other socio-economic policies, not by monetary policy.” (MoneyMarketing, June 2017) Through this research proposal, I aim to shed light on the role of central bank independence and how its role as an independent institution aids in the functioning of the overall economy. This paper provide will also provide an overview of the conduct of monetary policy, looking at aspects of it in South Africa.Problem Statement
Central Bank Independence has, over the past years, attracted a lot of attention from policymakers and economic researchers in certain countries on whether, it is necessary for the central bank to maintain its autonomy? This question is very key, in such that, it is of the essence that the mandate and the decisions of a country’s central bank are understood and respected. The mandate of a central bank is materially linked to a country’s economic fortune. The Treasury (Government) controls the fiscal policy and already during the years, we have seen government detrimentally fail in implementing a sound fiscal consolidation – imagine a government that had to not only control fiscal policy but also control the conduct of monetary policy (which is currently what central banks are mandated to control). It is very important that one understands why a central bank is required to operate independently and thus not have the mandate of the bank be amended to allow the determination of the framework and conduct of monetary policy be left under the influence of government. This research paper, will specifically (but not limited to) focussing on the following aspects of central bank independence:- The history of central bank independence, both internationally and locally;
- The theoretical pros and cons of Central bank independence (CBI);
- The evidence of the effect of CBI on policy performance both locally and internationally, specifically looking at the conduct of monetary policy;
- Possible threats to CBI in South Africa and the likely effect of those possible threats on monetary policy in the future
- Instrument Independence versus Goal Independence of Central Banks
Objectives
According to the Federal Reserve Bank, the motivation for granting independence to central banks is to insulate the conduct of monetary policy from political interference, particularly interference which is motivated by the pressures of political party elections to deliver short-term gains irrespective of longer-term costs. We have seen a trend from political parties where they will adopt an expansionary fiscal policy towards party elections by either increasing encouraging spending or cutting taxes which promotes household and business spending thus attracting voters during time of elections. If government had to oversee conduct of monetary policy, we could possibly see monetary instruments being used to cut interest rates and print more money thus further attract more voters during elections – thus this highlights the intent of the insulation of monetary policy and why it is essential that conduct of monetary policy be left in the hands of central banks and let the bank operate independently of government influence. This is not to free the central bank to pursue whatever policy it prefers however but to provide a more plausible responsibility of the government, through its central bank. The objective of this research paper is to reconnoitre the importance of the independence of a central bank and the impact on economic performance through the mandate it has set via the conduct of monetary policy. The intended objectives of my research paper, in addition to the aspects stated above that I intend to address, are:- Explain what central bank independence is and for what led to central banks being granted independence.
- Addressing the arguments for and against independence of central banks – is there a valid reason why the independence of a central bank is being questioned?
- What impact does the role of an autonomous central bank have on overall functioning of the economy and oversight of monetary policy? Is an independent central bank that crucial in ensuring positive economic performance for a country?
- Looking at different schools of thoughts from other researchers with respect to central bank independence and the conduct of monetary policy.
- Provide an in-depth analysis on the effectiveness of central bank independence and conduct of monetary policy specifically that of South Africa – seeing that the mandate of the South African Reserve Bank (SARB) had been challenged by the Public Protector.
- The likely ripple effects on the economy and the conduct of monetary policy if the SARB’s constitutional mandate to move from a mandate that focuses on inflation targeting and protecting the value of the currency in the interest of balanced and sustainable growth‚ to a mandate that focuses on the socioeconomic wellbeing of citizens.
Research Question/Hypothesis
This research paper has no quantitative element, it aimed at gaining a deeper understanding of the research problem without necessarily seeking to provide any solutions to it. In this case, my research objectives will suffice.Research Method
A descriptive-analytical research method will be used for in obtaining the objective set out for the subject matter topic to be discussed in this paper. This will involve examining the history of central bank independence over different time periods internationally and locally. Sourcing correct information on CBI via statistical sources, newspapers, government documentation and already published research papers.Preliminary Literature Survey
There has been numerous papers drafted and published on Central Bank Independence. I will be making use of some of the following literature prescribed to us as a guide:- Bernanke, Ben. 2010. Central bank independence, transparency and accountability. Speech delivered at the Institute for Monetary and Economic Studies International Conference, Bank of Japan, 26 March.
- Central bank independence and monetary policymaking institutions – past, present and future. European Journal of Political Economy 24: 722-736. De Haan, Jacob, Donato Masciandaro and Marc.
- Quintyn. 2008. Does central bank independence still matter? European Journal of Political Economy 24:717-721.
- De Haan, Jacob, Christian Bodea, Raymond Hicks and Sylvester Eijffinger. 2017. Central bank independence under threat? The Twenty-Third Dubrovnik Economic Conference. Organised by the Croatian National Bank, 4-6 June.
- Why central bank independence is so widely approved? Journal of Economic Issues 39: 843-865.
- Hielscher, Kai and Gunther Markwardt 2012. The role of institutions for the effectiveness of central bank independence.