Monetary Policy

How a central bank manages a country’s money supply is its monetary policy.

The common economic theory behind most countries’ monetary policy would suggest that being able to control the growth of the amount of money in an economy is the most effective method of controlling prices, and therefore of controlling inflation. However, the financial capabilities of central banks is often dictated (and severely limited) by the movement of money globally, which forces the central bank to use more indirect methods like exchange rate manipulation in order to control inflation.

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