Duties Of Central Bank Uae Central Bank

Published Date: 02 Nov 2017

Its main task is the formulation and implementation of the monetary policy and also regulating the banking institutions. Moreover the responsibility of managing the exchange rate system is also on the shoulders of UAE Central Bank. The services provided by other banks in the area are under the authority of UAE Central Bank.

UK Central Bank

The bank of England established in 1998 is responsible to issue bank notes in England. The bank notes it issues are accompanied with some unique security features and it is the only bank to regulate the bank notes. Its financial policy committee held the responsibility of protecting and continuously improving the system of finance. Also its duty is to set the interest rates that will manage the inflation to some low rate in order the money of people. Prudential Regulation Authority goes for regulation and protection of other banks, investment firms and issuers.

European Union Central Bank

The main duty of European Union Central Bank is to administer the monetary policy of 17 EU member states. Its basic function is to maintain the stable prices in the country and stop the inflation and also deflation mechanisms to occur in the area. Moreover one of the tasks is to manage and control the operations and activities of foreign exchange. Furthermore to make sure that the financial market of the country is running smoothly. Also it issues the euro bank notes in the country.

US FEDERAL RESERVE

The monetary policy of US Federal Reserve manages to create low unemployment, protecting against inflation and deflation and also moderate the levels of interest. Also its major duty is to manage and control the banking sector. Also the regulation of the financial system is done by Federal Reserve. It also provides money to the US government when needed.

TASK 2: MONETARY POLICIES

MONETARY POLICY OF UAE

The government and central bank of UAE is applying the expansionary monetary policy according to which the interest rates are kept low so that more money flow into the economy and government can spend more on infrastructure. Monetary policy has kept loose for the growth and development of the economy and kept the prices stable in the country so that neither inflation nor disinflation occurs in the market. Maximum employment is also one of the objectives of the monetary policy commission. The Central Bank has increased the liquidity to protect the banking sector. It is not expected by the Central Bank to increase the rate in 2013.

MONETARY SOVERIENITY

The legal control and authority of the government over the flow of currency is known as monetary sovereignty. The countries which independently can create their own currency and enjoy such unlimited power are the countries which are monetary sovereign countries. USA, China, Canada, Australia, UK. And monetary sovereign countries since producing their own currency can never in need of borrowing money and can never go into bankruptcy. Such as the US government is producing so many notes of dollar just with the help of money making machines and need permission from no one. The factors such as economic growth, inflation, deflation, recession decides the production of currency there.

Why does the UK not use the Euro? Isn’t the UK part of the European Union?

The currency of UK is pound sterling and it has through the legal exemption decided not to adopt the euro currency and keep its currency separate and it has no plan to adopt the euro currency as its currency in the future too. The euro is only adopted by eurozone states and in total 11 currencies are there in the entire Europe. The major reason for UK to not adopt euro is that it cannot devalue and if the currency of some country become uncompetitive so even than you can’t devalue it such as problems faced by Italy and Greece. The central monetary policy which has been set by the Central bank for Euro might not be appropriate for few countries and thus create problems for them.

TASK 3: PRICE AND EXCHANGE RATE

Item

April 14

April 20

April 27

Dirham v. euro

1 euro= 4.81098 AED

1 euro=4.79527 AED

1 euro=4.7858 AED

Dirham v UK pound

1 GBP = 5.6334 AED

1 GBP = 5.59 AED

1 GBP = 13.2103 MAD

Dirham v US Dollar

1 USD = 3.67 AED

1 USD = 3.6699 AED

1 USD = 3.67 AED

Oil price

Gold Price

24k= 174.88 AED

24k= 165.99 AED

24k =172.66 AED

MAIN TRADING PARTNERS

UAE

Saudi

Bahrain

Kuwait

Oman

Qatar

Main trading partners:

S. Korea,

Japan

India

US

China

Japan

Asians

Germany

Korea

Saudi

Oman

UAE

India

Japan

China

Brazil

UAE

India

US

Pakistan

Saudi

Jordan

China

Japan

South Korea

Thailand

UAE

India

Japan

South Korea

Thailand

Belgium

Spain

UK

Germany

France

Italy

Spain

US

Germany

Netherlands

Ireland

France

Belgium

Spain

France

US

UK

Italy

Netherlands

Austria

Belgium

Germany

Italy

Spain

UK

Belgium

US

Netherlands

Germany

France

Spain

US

UK

Russia

Belgium

France

Germany

Portugal

Italy

UK

US

Belgium

Website: bridgAT.com

TASK 4: EUROPEAN MONETARY UNION

European Union Countries

1999

Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria , Portugal and Finland

2001

Greece

2002

Introduction of euro banknotes and coins

2007

Slovenia

2008

Cyprus, Malta

2009

Slovakia

2011

Estonia

Criteria for Joining Euro

All the countries who are the members of European Union have not adopted Euro until yet. Few countries are still using their own currencies such as UK is using pounds sterling. The conditions which a country is required to meet for adopting euro are as follows. The Central Bank is creating a single currency and thus a single monetary policy for the country although this monetary policy is made on the basis that it suits to entire European nation countries but still there got be some problems for countries to compete it and they even can’t devalue euro currency according to their own needs and demands. It is called the economic convergence criteria and every member country of European Union must meet these criteria to join Euro currency as their currency. The country who’s adopting Euro currency must have to make some amendment to their existing laws and rules for running the country. These changes must be made in order to make the rules in accordance with the Central Bank laws.

Price stability must be maintained in order to protect against inflation and deflation in country.

Exchange rate stability is important and big deviations shouldn’t occur in few years.

Interest rates should also be stable for a long time.

TASK 5:

Should the UAE and fellow GCC countries form this type of monetary union?

Yes the UAE and fellow GCC countries should form this type of monetary union because all the countries of GCC which includes Bahrain, Kuwait, Oman, Qatar, UAE, Saudi Arabia shared the similar political economic cultural aspects and such type of formation is beneficial for all the countries. GCC countries are highly dependent on oil exports and such type of union will give them the benefit to trade freely in other member countries without any problem. The common bonding among the countries is on the basis of their religion as all the states are Islamic states with the Muslim faith. As the GCC countries form a monetary union they can enjoy the benefits provided by the central bank such as it will stable the prices of the entire monetary union such as it will protect the countries from inflation or deflation.

Also the countries will enjoy the benefit of having a single currency. With the help of the single currency the bargaining power of the union will thus increase and they will be able to negotiate with other unions in a less discriminatory way and produce effective and appropriate results. Also the single currency will help in developing and improving the financial status.

When the countries will make a monetary union the economic size of the countries will automatically increase and thus will cause low fluctuations in the exchange rate which is very important for the effective growth and development of the country.

Also such a monetary union will help the countries to trade effectively and thus lowers the cost of imports and exports among the countries which are the members of the monetary union and it will lower the other transactions cost too. The countries fulfill the requirements of the convergence area very well and their economical capability is great.

The GDP’s, exchange rates and inflation rates of the GCC countries can become compatible and such factors are important for establishing a monetary union but the socio political factors are making this process difficult. The member countries will become an attraction for the domestic as well as foreign investors as it is offering a large market to them now with less searching cost.

ORAL DEFENCE QUESTIONS

Q1) what is a monetary union?

Ans) monetary union is the coordination and collaboration among different countries with a single currency. These countries can have more than one currency but those currencies must have exchange rates that are not going to fluctuate any time soon. All the countries who are the member of the monetary union must follow and abide by the laws of the central bank who controls the monetary policy of that union.

The monetary policy designed by central bank is one and same for all the countries who are its members. It will become easy for the member countries to trade among them as it will cut the costs of transactions. The problem is that every member country policies must be compatible with the overall monetary policy set by the central bank but it becomes difficult for countries sometimes.

Q2) how is a monetary union different from a customs union?

Ans) a custom union is defined as the union or group in which the countries collaborate with each other for the benefit of trade. The member countries trade among themselves with zero tariff and charge the same tariff to other countries which are not the member of the union. Also the member countries are agreed for the free movement of labor and resources among them. The objective for establishing a custom union is to develop the economic integration among the member countries and also to strengthen the cultural ties among them.

The huge difference between a monetary union and custom union is that the monetary union member must have a single currency or more than single with fixed exchange rates but in developing custom union it is not necessary. Also the entire union adopts the same monetary policy under the law of central bank which doesn’t occur in the case of custom union. Custom union only provides a free trade market and its relation among the member states is only on the basis of the trade. In monetary union the countries must be compatible to use the single monetary policy in their state which is not required in custom union.

Q3) what is the UAE involved in currently – a monetary or customs union? Do you think this helps or hinders (hurts) trade?

Ans) UAE has currently involved in establishing a monetary union because it thinks there is a strong need for establishing such a union. As there is a great economic and cultural integration among the countries of GCC so it will as a result be beneficial for them to establish the monetary union among them. It will also help them in stabilizing the exchange rates that will convert them into one single economy with the single monetary policy.

The monetary union produced among the countries will definitely encourage the trade among the member countries. As the GCC countries are moving towards the development of more infrastructure and industrial area so when countries will collaborate as a result of being a part of the monetary union the intra trade will be promoted further as it is going to be cheaper among the member countries. Also with the help of the monetary union all the business will become synchronized and more successful.

Q4) what does the IMF do?

IMF stands for international monetary funds. Its main objective is to fix the exchange rates and stops them from fluctuating. It basically gathers the money from its member countries from time to time and provides it to that country that is in need of money. The money is provided to them as funds and these funds are provided to them temporarily. With the help of such activity the IMF is creating a balance among the country’s economies and provides economies integration to its member country.

Firstly IMF provides the loan which is short term to its member countries that are facing the problem of negative BOP. So in order to enhance the balance of payment structure the country needs funds which he gets by being a member of IMF.

It also provides advices to its member countries on various issues such as technical economical and trade issues.

Q5) what does the WTO do?

World Trade Organization as it name implies is an organization that allows the nations of the world to trade with each other in easy and effective ways. It made all the rules and regulations necessary to fulfill the trade between nations. Every country who wants to be a part of WTO needs to sign different agreements and bulk of negotiations but it is for their own benefits. WTO helps the member countries who are producing different goods and services and wants to export them and also it protects different member countries at the time of the importing goods.

WTO actually provides a central forum to its member countries that want to negotiate with other countries on the topics of trade and its multilateral relations but all this matter is discussed according to the signed agreement. Also it is providing the global market for the consumers and benefit consumers in a way as it produces a sense of competition among members.

Moreover its function is to promote world trade in a manner that no country will face loss as a result and every country who is involved in this negotiation get benefit from it. The rules and regulations provided by the WTO are fair in nature. It ensured the success of the developing countries that in no other case can get equal benefits as given to the developed countries.

Q6) Does the idea of free trade really work? Is there more trade? So more employment internally in the country? Agree or disagree?

Ans) free trade areas are defined as those areas which are linked together with the help of some union such as monetary union or custom union. When they are the members of custom union they can import and export anything to each other with zero tariffs. It means no extra charges have to be paid by the countries to buy the products from the member countries and also no tariffs are imposed for the import section.

When countries become members of custom union they can enjoy the benefits of free trade so the intra trade will definitely improve. In case the member countries planned to develop the industrial and infrastructure sectors more so it will improve the trade section further because they then have so much to offer.

I agree that when trade sector of a country will improve so that the employment level in the country. As more and more people can join the import export businesses and new jobs will emerge as a result.

Q7) Should the GCC form a union similar to the European Union? Why? Why not? Advantages? Disadvantages? Difficult because? Easy because?

Ans) Yes the UAE and fellow GCC countries should form this type of monetary union because all the countries of GCC which includes Bahrain, Kuwait, Oman, Qatar, UAE, Saudi Arabia shared the similar political economic cultural aspects and such type of formation is beneficial for all the countries. GCC countries are highly dependent on oil exports and such type of union will give them the benefit to trade freely in other member countries without any problem. The common bonding among the countries is on the basis of their religion as all the states are Islamic states with the Muslim faith. As the GCC countries form a monetary union they can enjoy the benefits provided by the central bank such as it will stable the prices of the entire monetary union such as it will protect the countries from inflation or deflation.

Also the countries will enjoy the benefit of having a single currency. With the help of the single currency the bargaining power of the union will thus increase and they will be able to negotiate with other unions in a less discriminatory way and produce effective and appropriate results. Also the single currency will help in developing and improving the financial status.

When the countries will make a monetary union the economic size of the countries will automatically increase and thus will cause low fluctuations in the exchange rate which is very important for the effective growth and development of the country.

Also such a monetary union will help the countries to trade effectively and thus lowers the cost of imports and exports among the countries which are the members of the monetary union and it will lower the other transactions cost too. The countries fulfill the requirements of the convergence area very well and their economical capability is great.

The GDP’s, exchange rates and inflation rates of the GCC countries can become compatible and such factors are important for establishing a monetary union but the socio political factors are making this process difficult. The member countries will become an attraction for the domestic as well as foreign investors as it is offering a large market to them now with less searching cost.

Q9) Does the UAE having such a large expatriate labor force influence trade policies made by the UAE? How?

Ans) expatriates are the people who belong to some other country or nation but living in this country. They are attracted to the foreign country because of some investment opportunities in the countries which were not provide in the domestic country. Also expatriates are attracted because of the employment opportunities available in a country.

Expatriates in UAE constitute most of its population as it welcome the expatriates open heartedly. Expatriate labor force affected the trade policies made by the UAE government as the labor made a great portion of economy in UAE.

And also when some policy regarding the trade policy will make it will in return attract more and more expatriates which is good for the country. As more and more foreigners will invest in the country it will become beneficial for the economic development.

Q10) what is fiscal and monetary policy? What does this have to do with monetary Union?

Ans) monetary policy is basically established by the central bank of any area. It focuses on the management and administering of money supply in the economy in order to save the economy from inflation or deflation. Another important task is to control the interest rates of the economy to stabilize the currency. Monetary policy in short have the power to keep in check the spending done by customers and business sector and also it can increase or decrease the level of spending according to the need.

Fiscal policy is defined as the policy which deals with two important aspects of money. One is taxation and the other is borrowing. In order to control the economy its function is to influence the tax rates, interest rates and government spending.

Monetary policy and fiscal policy have a strong relationship with the monetary union. In order to establish a monetary union among the member countries a simple and necessary rule is that there monetary policy will be the same for every country no matter what. If they failed to be compatible with the monetary policy of the central bank they can’t be a part of it. But if a country will be compatible it can enjoy the benefits of a single currency as well.

Q11) Where does Europe stop? Do new countries keep joining? Turkey? Russia? Norway? Canada?

Ans) Europe has extensive plans to keep expanding itself and the European nations are not going to stop. Slowly and gradually the countries of turkey, Russia and then Norway and finally Canada will join it.

The country who’s adopting Euro currency must have to make some amendment to their existing laws and rules for running the country. These changes must be made in order to make the rules in accordance with the Central Bank laws

The country who’s adopting Euro currency must have to make some amendment to their existing laws and rules for running the country. These changes must be made in order to make the rules in accordance with the Central Bank laws. Price stability must be maintained in order to protect against inflation and deflation in country. Exchange rate stability is important and big deviations shouldn’t occur in few years. Interest rates should also be stable for a long time.

Q12) why do you think the UK doesn’t join in? Wouldn’t it be better for UK trade to be using the Euro? What is the point that stops the UK from joining?

Ans) all the countries who are the members of European Union have not adopted Euro until yet. Few countries are still using their own currencies such as UK is using pounds sterling. The conditions which a country is required to meet for adopting euro are as follows.

The Central Bank is creating a single currency and thus a single monetary policy for the country although this monetary policy is made on the basis that it suits to entire European nation countries but still there got be some problems for countries to compete it and they even can’t devalue euro currency according to their own needs and demands. It is called the economic convergence criteria and every member country of European Union must meet these criteria to join Euro currency as their currency.

The country who’s adopting Euro currency must have to make some amendment to their existing laws and rules for running the country. These changes must be made in order to make the rules in accordance with the Central Bank laws. Price stability must be maintained in order to protect against inflation and deflation in country. Exchange rate stability is important and big deviations shouldn’t occur in few years. Interest rates should also be stable for a long time.

Q13) where did the idea of creating the Euro come from?

Ans) the euro has came in emergence on January 1, 1999 although the European has made the creation of euro its goal from 1960. It was then decided the European nation’s monetary union will be created by giving them the same currency except the country of Denmark and UK.

The idea behind the creation of EURO is very simple. The creators have thought to bring all the nations together for the man’s of trade and by this way they won’t go against war for each other. And it will strengthen the integration of the economy. It really suited Europe as it lived more than seventy years in peace and no war has conducted among the nations.

In Europe the EEC also has removed so many barriers of cultural differences and trade barriers etc. Also the economies raise and reach to high peaks in Europe and as a result people got richer which makes them choose Euro as a single currently for the political protection of their nations.

Q14) Describe what the Gold Standard was?

Ans) according to the gold standard the Government of the country will allow to convert its currency into fixed amounts of gold and also the person can convert the gold into the currency value. The exchange rate of this system would be examined by ounce of gold to measure with the one of god of the other nation’s currency.

The gold system of monetary policy is very old and was abundant after the World War 2 because of its weaknesses. As it was very difficult for the countries to adjust big reservoirs of gold with them and manage it for buying and selling of goods. Although it was improved as the Bretton Wood System but even then it was unacceptable to use as a system on monetary policy.

And then almost every country including the US tripped itself to the Fiat money system that was intrinsic in nature so it can easily be used as medium of exchange. And in this system the value of money would be decided by the supply and demand of the goods and services. Also the supply and demand of money will determine its value.

Q15) what should be the main goal of any central bank?

Ans) The main duty of European Union Central Bank is to administer the monetary policy of 17 EU member states. Its basic function is to maintain the stable prices in the country and stop the inflation and also deflation mechanisms to occur in the area. Moreover one of the tasks is to manage and control the operations and activities of foreign exchange. Furthermore to make sure that the financial market of the country is running smoothly. Also it issues the euro bank notes in the country.

The bank of England established in 1998 is responsible to issue bank notes in England. The bank notes it issues are accompanied with some unique security features and it is the only bank to regulate the bank notes. Its financial policy committee held the responsibility of protecting and continuously improving the system of finance. Also its duty is to set the interest rates that will manage the inflation to some low rate in order the money of people. Prudential Regulation Authority goes for regulation and protection of other banks, investment firms and issuers.

Its main task is the formulation and implementation of the monetary policy and also regulating the banking institutions. Moreover the responsibility of managing the exchange rate system is also on the shoulders of UAE Central Bank. The services provided by other banks in the area are under the authority of UAE Central Bank.