Monday, 27 August 2012

A World Map of Monetary Policy

Reflecting on our earlier post about advanced monetary policy and the types of (if) existing targeting methods, we now publish the world map of monetary policy - depicting the worldwide uses of inflation targeting and fixed exchange rates.

World Map of Monetary Policy by Schoolonomist, 2012.
Schoolonomist, 2012. All rights reserved.


Additional information

The map is not complete - it only shows monetary regimes which are explicitly inflation targeting, while monetary aggregate users generally don't release such an exact number of guidance, simply "attempting to maintain price stability".
 Moreover, even if a country uses another countries currency - like in the case of Ecuador, which uses the US dollar -, that does not necessarily prevent it's central bank from conducting an independent monetary policy; even though it can't issue currency on it's own, they can acquire the needed currency via open market operations, and they can still act as lenders to the commercial banks.
The largest currency union, the Eurozone, has national central banks dominated by the European Central Bank, which oversees the change of interest rates. While it has a inflation target of 2%, the bank' mentality is "dominated" by that of the Bundesbank, Germany's central bank which in turn pursues a tight monetarist policy, also called in contrast to the "New Zealandian model"(who were the pioneers of inflation targeting) as the "Bundesbank model".

Fixed currencies


Many countries, while maintaining their own currency, choose to peg their currency to that of a foreign nation - in the case of f.e. Denmark the euro, while China to a basket of 10 foreign currencies.This allows central bankers to import another countries' monetary policy, which can curb excessive inflation, like in the case of 1990's Argentina and Brazil. However, if pegged unwisely, a too strong currency can cause the excessive growth of imports, in turn causing a setback in domestic growth - as was the case of Argentina after introducing it's peg, forced to give it up in 1999 and declare bankruptcy in 2002.

Relevance

In many cases, monetary policy is not even relevant - the 11 Sub-Saharan countries using the Central African and West African francs are de jure subjugates of the Central Bank of West African States and the Central Bank of Central African States, respectively, but in practice many of these countries populations does not use money per se in everday trading situations, or if it does, the power of central banks to conduct effective monetary policy is limited. For example, the latter central bank's Gabonese officials stole around 36 million (!) dollars from the Central African reserves, using it to in turn fund French political parties.

Do you have additions to the map? Have we left someone out? Let us know.




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