What changes are to be introduced in the Ruritiania central bank law Essay

What changes are to be introduced in the Ruritiania central bank law with a new currency law - Essay Example Policy decisions must be both anticipatory and innovative, considering all relevant information regarding the prospective evolution of prices, and guaranteeing that the final objective is realized in a timely manner (Lamfalussy, 466). Central banks have generally had the objectives of maintaining price stability, maintaining financial stability and fostering financial development more broadly and to support the state’s financing need in times of crisis (Goodhart). The new Ruritiania Central Bank law should be provided with these operations under the new law. Like most jurisdictions, the Monetary Policy Treaty in Europe issues the European System of Central Banks full independence to determine the appropriate level of interest rates (Lamfalussy). The years 1930 to 1960 saw government control over central banks (Goodhart). This initiated substantial economic depressions, and was deemed pragmatic. It was this negative impact that led to the independence of central banks all over the globe. The new Ruritiania currency law should provide for the independence of the Central bank if it is to be adopted to avoid encounters such as economic depressions (Giovanoli). The new Ruritiania law provides for the net foreign exchange reserves. Under Article 5(1) of the law, it is clearly stipulated that the mandate of the central bank shall be to ensure the aggregate amount of its monetary liabilities shall not exceed the equivalent of its foreign exchange reserves. Such aggregate amount of the monetary liabilities as provided under sub-article 2 shall be the sum of all existing banknotes, coins and main units existing in any branch of the central bank, and also any credit balances of all accounts maintained on the books of the central bank and its organizational units. Article 7 provides for dollarization, a factor that occurs when a country formally discards its own currency and adopts a more unwavering currency of another country as a legal tender with