FM W9

Question 1

What are the arguments for and against public ownership of central banks

Answer 1

For:
1. Central banks act in the ultimate public interest.
2. Private ownership results in more risk taking.
Against:
1. Private ownership guarantees central bank independence.
2. Private ownership restricts the distribution of dividends per share.

Question 2

What are the three main decision bodies of the ECB

Answer 2

1. Governing council - monetary policy, aim for price stability.
2. Executive Board - day-to-day operations.
3. General Council - encourage cooperation between National central banks of the EU member states.

Question 3

Why should central banks be independent

Answer 3

1. Political business cycle - booms in the economy.
2. Public distrust politicians.

Question 4

Why shouldn’t central banks be independent

Answer 4

1. Macroeconomic stability is best achieved when monetary policy is coordinated with fiscal policy.
2. Central banks are not immune from political pressures.