Monetary Policy in Kuwait Essay Example | Topics and Well Written Essays - 2250 words

Monetary Policy in Kuwait - Essay Example The instruments include means that are available to monetary authorities and that are used to achieve the ultimate aims. Central banks generally use a number of key instruments such as changes in the ratio of legal reserves, the discount rate or the central bank rate, and open market operations. Very often, these instruments are enhanced by using other supplementary instruments, known as direct instruments, generally in the form of instructions issued by the central bank. Direct instruments are much used by developing countries because the nature of the economic problems of these countries and their economic conditions do not allow their monetary authorities to be quite free in applying traditional instruments of monetary policy. It relates to existing legal and institutional procedures, particularly as the interest rate on the Kuwaiti dinar is governed by legal limits, in addition to issues related to the degree of competition inside the banking system. It also relates to the basic features of the Kuwaiti economy, not only as an economy based on the philosophy of free markets and free capital movement, but also as an oil economy of high exposure, depending on imports to meet a major portion of consumption and investment demand. Talking about the monetary policy goals as shown above should not m... Talking about the monetary policy goals as shown above should not mitigate the important role central banks may play in other economic areas, especially in the area of developing money and capital markets in countries where these markets are lacking. The development of such markets will enable central banks to use one of the important instruments of monetary policy, i.e. open market operations. The Central Bank of Kuwait and the organization of banking business specified the goals of the Central Bank of Kuwait, similar to those of central banks in general. The goals related to the function of the monetary policy of the Central Bank of Kuwait can be stated as follows: To endeavour to secure the stability of the Kuwaiti currency and its free convertibility into foreign currencies. To endeavour to direct credit policy in such a manner as to assist economic progress and the growth of the national in-come. To supervise the banking system in the State of Kuwait. Since the mid-eighties the Central Bank of Kuwait has been on a course dictated by the nature of new developments witnessed by the Kuwaiti economy as a result of a number of internal and external effects of the securities market crisis on the whole economic condition, including the emergence of the difficult debt problem as a key issue threatening the financial system in the country. The Central Bank of Kuwait had no alternative but to make the protection of the banking and financial system its top priority and to take necessary measures to identify repercussions of the securities market crisis and prevent the accumulation of its negative effects on both the Kuwait economy and community. Based on the priority of this commitment, the Central Bank adopted a number of measures,