Central banks in emerging market economies differ from their counterparts, i.e., developed economies, in many ways. In some of the developed economies, central banks are entrusted with the conduct of monetary policy. In most emerging market economies, however, the central banks besides enforcing the monetary policy shoulder a number of other responsibilities, ranging from debt management to the regulation and supervision of banks and financial institutions.
Even in the conduct of monetary policy, central banks in the emerging economies have to contend with many other objectives and distinct trade-offs as compared to some developed economies whose single objective is price stability. While aiming at multiple objectives and handling complex trade-offs, central banks in these economies assume the responsibility of looking after the interests of depositors, intermediaries, government, businesses and external trade.
In relation to the choice of instruments given, the level of market development and multiple objectives, emerging economies cannot entirely rely on single instrument such as interest rates. Rather, central banks in such economies prefer a sensible mix of interest rates, cash reserves and other instruments. The most striking feature of central banking in the emerging market economies pertains to their significant role in the development of financial markets and active participation in the institution-building process. |
