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Sunday, November 1, 2020

Country focus: The Gambia Re: the financial, economic and other ramifications of printing new currency and minting new coins

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Momodou Camara (Acca)

The timing and introduction of the new banknotes and minting of coins-(if any) is bad and ill conceived.

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From our financial news terminal here at Money and Markets @ Standard Newspaper, we have been looking at the latest move by the Central Bank of The Gambia.

Functions of Central Bank

1. Issue money. The Central Bank will have responsibility for issuing notes and coins and ensure people have faith in notes which are printed, e.g. protect against forgery.

Printing money is also an important responsibility because printing too much can cause inflation.

2. Lender of Last Resort to Commercial banks. If banks get into liquidity shortages then the Central Bank is able to lend the commercial bank sufficient funds to avoid the bank running short. This is a very important function as it helps maintain confidence in the banking system.

If a bank ran out of money, people would lose confidence and want to withdraw their money from the bank.

Having a lender of last resort means that we don’t expect a liquidity crisis with our banks, therefore people have high confidence in keeping our savings in banks.

For example, the US Federal Reserve was created in 1907 after a bank panic was averted by intervention from J.P.Morgan; this led to the creation of a Central Bank who would have this function.

3. Lender of Last Resort to Government. Government borrowing is financed by selling bonds on the open market.

There may be some months where the government fails to sell sufficient bonds and so has a shortfall.

This would cause panic amongst bond investors and they would be more likely to sell their government bonds and demand higher interest rates. However, if the Bank of England intervene and buy some government bonds then they can avoid these ‘liquidity shortages’.

This gives bond investors more confidence and helps the government to borrow at lower interest rates. A problem in the Eurozone in 2011, is that the ECB was not willing to act as lender of last resort – causing higher bond yields.

4. Target low inflation. Many governments give the Central Bank a target for inflation, e.g. the Bank of England has an inflation target of 2% +/- 1. See: Bank of England inflation target.

Low inflation helps to create greater economic stability and preserves the value of money and savings.

5. Target growth and unemployment. As well as low inflation a Central Bank will consider other macroeconomic objectives such as economic growth and unemployment.

For example, in a period of temporary cost-push inflation, the Central Bank may accept a higher rate of inflation because it doesn’t want to push the economy into a recession.

6. Operate monetary policy/interest rates.

The Central Bank set interest rates to target low inflation and maintain economic growth. Every month the MPC will meet and evaluate whether inflationary pressures in the economy justify a rate increase.

To make a judgement on inflationary pressures they will examine every aspect of the economic situation and look at a variety of economic statistics to get a picture of the whole economy.

See: how the Bank of England set interest rates.

7. Unconventional monetary policy. The Central Bank may also need to use other monetary instruments to achieve macroeconomic targets.

For example, in a liquidity trap, lower interest rates may be insufficient to boost spending and economic growth.

In this situation, the Central Bank may resort to more unconventional monetary policies such as quantitative easing.

This involves creating money and using this money to buy bonds; the aim of quantitative easing is to reduce interest rates and boost bank lending

8. Ensure stability of financial system. For example, regulate bank lending and financial derivatives. STICK WITH ME AND WITH THE STANDARD FOR PART ELEVEN (11)

THE CURRENCY MARKETS

*** No significant changes since June in the indicates rates and they remain as quoted figures as per the 11th. June, 2019.

THE COMMODITY MARKETS IN THE GREATER BANJUL AREAS

*** Market prices are as at 24th. August, 2019
GLOBAL FINANCE AND ECONOMIC NEWS
Top 5 political events that rocked the global economy
Political events can have huge effects on the global economy.

Millicent Angel examines some of the most significant examples across the 20th and 21st centuries.

Political decisions have always affected social and economical aspects in a region whether the change is as small as new parking restrictions, or as major as countries entering war with one another.

Millicent Angel examines some of the most striking examples of political decisions affecting economies.

1 – The Greek financial crisis
The Greek financial crisis, which started in 2010, was arguably caused by the bad political decisions of the Greek authorities, which spent money excessively, engaged in tax avoidance and kept interest rates low for too long, leading to inflationary pressures.

As a result, 50 percent of under-25 year olds in Greece became unemployed, deprivation was commonplace and riots took place throughout the country.

2 – The fall of the Berlin Wall
The fall of the Berlin Wall on November 9, 1989 signified the end of Soviet and communist rule in Eastern Europe; this political decision gave rise to many economic opportunities for the USSR’s ex-satellite states.

Indeed, the trade market opened up to an extra 400 million people in Eurasia; moreover, it dramatically benefitted the financial state of countries such as Poland, Hungary and Ukraine. These economies were previously controlled by Moscow, but following the collapse of the wall, they gained the freedom to trade with any country they wished, manage their own finances and adopt capitalism.

3 – The formation of the European Union
The formation of the European Union (EU) on November 1, 1993 in the Netherlands, was an extremely significant political decision that is still felt today.

The euro, which many EU member states use as their currency, better facilitates the freedom of movement and goods across the Union, while providing the benefits of integrated financial markets.

It also gives the EU a stronger presence in the global economy. Since it was conceived, the single market is said to have added 2.2 percent to EU gross domestic product, as well as boosting employment by 2.8 million.

4 – World War Two
The end of World War Two in August 1945 came with countless economic effects. In the Soviet Union, around 15 million people were killed as a result of the war; productivity in the USSR slowed as a result, which in turn led to huge economic difficulties. In Germany, low industrial output led to a downturn, further exacerbated by the cost of $320bn in reparations. The UK was forced to borrow $4.33bn (£2.2bn) from the US, which it could not pay back until 2006, showing just how much the economy was dependent on the US after the war.
5 – The Arab Spring
The Arab Spring began in June 14, 2011 in Tunisia, and swiftly spread throughout the rest of the Middle East to countries such as Egypt, Yemen, Libya and even Saudi Arabia. There was an immediate backlash from authorities throughout the region, with numerous rash political decisions made to oppress those revolting. The Arab Spring is estimated to have cost the region $600bn or six percent of its GDP between 2011 and 2015.

QUOTES THAT COULD DEFINE YOUR MOMENT
1. No guts, no story.
By: Chris Brady
2. My life is my message.
By: Mahatma Gandhi
3. Screw it, let’s do it.
By: Richard Branson
4. Boldness be my friend.
By: William Shakespeare
5. Keep going. Be all in.
By: Bryan Hutchinson
6. My life is my argument.
By: Albert Schweitzer
7. Dream big. Pray bigger.
By: Unknown
8. Leave no stone unturned.
By: Euripides
9. Fight till the last gasp.
By: William Shakespeare
10. Stay hungry. Stay foolish.
By: Steve Jobs

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