Discussion What do you know about central banks?

1. Do you know whether the National Bank of Ukraine is independent?

2. What about these banks? Do you know if they are independent?

• the Bank of England

• the Federal Reserve Board

• the Bundesbank

• the Japanese central bank

• the Chinese central bank

reading CENTRAL BANKING SYSTEM

The central banking system is a major sector of any modern monetary system. It is of great importance to the fiscal policy of the national govern­ment and the functioning of the private sector. Most countries have a cen­tral bank. In some countries the central bank is independent from the government (USA, Germany), in others (UK, Japan. China) it is control­led by the government. In the former case the government will be unable to instigate expansionary policies either to boost economy in a recession or to create a boom before the next election.

A central bank is a bank which controls or polices the banking industry in a particular country, as well as carries out other specialised functions, which may be specific to that country. Because of its unique position it is usual for the central bank to be controlled by the state and not to be oper­ated as a strictly commercial concern.

UNIT 2. CENTRAL BANKS 153

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Central bank is a national institution such as the Bank of England, the US Federal Reserve System, the Bundesbank of Germany, the Banque de France, the Bank of Japan, the National Bank of Ukraine that functions as the principal controller of the money supply and thus exerts a dominant influence on its country's economic condition. Each of the central banks differs a little from the others in the range of its activities, in its powers and techniques it can use in the nature of the relationship with government, but all of them serve both to their coun­tries' government and to its banking system not for private customers. Central banks are responsible for the implementation of monetary policy and supervision over the banking system. They control the money supply, act as lender of last resort to commercial banks with liquidity problems.

Central bank has no contact with the general public but acts as a 'banker's bank' with the authority to issue currency and to make loans, at interest rates it determines, from its holdings of the cash reserves of com­mercial banks. It administers foreign money exchange, controls, buys and sells reserves of gold and foreign currencies thus influencing the value of its country's currency on the international market. Generally it operates independently of its government although it often acts as a financial advi­sor to the administration.

To ensure the safety of the banking system central banks impose reserve requirements obliging commercial banks to deposit a certain amount of money with the central bank at zero interest. Central banks in different countries also impose different 'prudential ratios' on commercial banks such as capital ratio and liquid ratio.

Most developed countries have a central bank whose functions are broadly similar to those of the Federal Reserve. The Bank of England has existed since the end of the seventeenth century. Napoleon I established the Banque de France in 1800 and the Bank of Canada began operations in 1935. The German central bank was reestablished after World War II and is loosely modeled on the Federal Reserve.

VOCABULARY money supply - грошова маса, кількість

NOTES грошей в обігу

to exert - впливати

lender of last resort - останній кредитор

у критичній ситуації, кредитор

останньої інстанції

to issue (coins, banknotes) - тут

здійснювати емісію грошей

exchange rate - обмінний курс

to impose - нав'язувати, накладати

prudential ratio - коефіцієнт обачливості

capital ratio - співвідношення капіталу

до активів

liquid ratio - співвідношення ліквідних

активів банків до сумарних депозитів

loosely - вільно

EXERCISES I. Answer the following questions.

1. What is the major sector of any modern monetary system?

2. What are central banks responsible for?

3. What role does the central bank play in any country?

4. What functions do central banks perform?

5. What is done to ensure the safety of a banking system?

6. Why are 'prudential ratios' imposed on commercial banks?

PART III. BANKING

II. Give English equivalents for the following Ukrainian phrases:

• система центрального банку

• бути відповідальним за проведення кредитно-грошової політики

• контролювати грошову масу

• встановлювати процентну ставку

• проблеми нестачі ліквідних коштів

• здійснювати грошову емісію

• надійність банківської системи

• депонувати кошти в центральному банку під нульові проценти.

III. What do Central Banks do? Compose sentences using verbs from column A and phrases from column B.

A central bank...

A	В
1. acts	a) a regulatory function
2. administers	b) as a "banker's bank"
3. affects	c) banking facilities
4. buys	d) banknotes and coins
5. clears	e) checks
6. controls	f) the national debt
7. determines	g) foreign money exchange
8. finances	h) funds between banks
9. influences	i) independently of its government
10. issues	j) interest rates
11. sets	k) loans
12. transfers	1) monetary policy and reserves of gold
13. makes	m) the value of its country's currency on the international market
14. operates	n) reserves of gold and foreign currencies
15. performs	o) reserves of gold and foreign currencies
16. provides	p) rules for how banks can operate
17 sells	q) the monev supply

IV Central Banking Activities. Match the activities and the definitions.

1. Amounts of money which are set aside to cover large loans. a) prudent supervision
2. Documents which explain the responsibility of supervisors of international banks.	b) Deposit Protector Scheme
3. Guidelines for banking supervision issued through the EU.	c) Basle Concordat
4. Deposits put aside by banks to protect deposits.	d) Capital Adequacy Directive
5. Banking supervision which focuses on financial strength.	e) consolidated supervision
6. A representative of a central bank or monetary body who acts as a mediator. in disputes between banks and clients.	f) banking ombudsman
7. A bank's method of calculating how much capital is needed to operate safely.	g) provisions
8. Banking supervision carried out by a group of central banks.	h) EU directives
9. A stipulation which specifies the minimum ratio of capital to assets that a bank should hold legally in a country.	i) Risk Asset Ratio (RAR)

UNIT 2. CENTRAL BANKS

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V Central Banking Functions. Sentences in Column A and Column В summarize central banking functions in a slightly different way. Match them.

Column A	Column В
1. setting interest rate ceilings and floors	a) controlling the amount of banknotes in circulation.
2. printing money or destroying it	b) establishing maximum and minimum lending rates, thereby controlling the credit system.
3. open-market operations	c) ensuring that banks have a sufficient liquidity ratio to allow customers to withdraw their deposits when they want.
4. exchange rate supervision	d) intervening on foreign exchange markets, buying or selling large amounts of the national currency, to prevent major fluctuations.
5. commercial banking supervision	e) lending money to a commercial bank in danger of going bankrupt.
6. acting as a lender of last resort	f) selling government bonds to commercial banks or buying them back in order to alter the amount of credit the banks can offer (and thereby alter the money supply).

VI. Monetary Policy. Replace the words in italic with synonyms from the box.

value	goal	through	controlling
consistently	concerned with	shortage	deal
safeguard	increasing	curbing	external
purchasing	key	influence

Monetary policy is connected to (1)_____ the value and cost of money in the economy.

When prices rise, money loses its worth (2)_____, and when prices rise constantly (3)______,

people lose confidence in the currency. The main aim (4)________ of any central bank is to

protect (5) ____ the currency by stabilising prices and limiting (6) _________ inflation. The

central bank can influence the demand for money by reducing or raising (7)_______ its cost.

This can be done by monitoring (8)_____ interest rates.

Monetary policy is one of the main (9) ________ elements in the management of any

modern economy. The central bank can affect (10)____ economic activity by means of '(11)

__ the dealing room; by buying (12)______ and selling bills the bank can affect the cash

position of the banking system. If there is a lack (13)________ of funds the bank can lend

money to the system. In addition, the bank can trade (14)_______ in the foreign exchange

market to influence the outside (15)____ value of the currency.

Дата добавления: 2014-12-23