Question

1. Students select a Middle Eastern nation to compare to the United States. Use the links on the Central Bank and Monetary Authority website to research both Central Banks.

2. Students submit a paper that addresses the following areas;
         a. Compare and contrast when, why and how each central bank was established.
         b. Compare and contrast two mandates of each central bank.
         c. Compare and contrast the degree of autonomy and transparency of each central bank.
         d. Compare and contrast the role of each central bank in the market for domestic interest rate policy.

Answer 1

1. One of the Middle Eastern nations is Egypt. Central bank is a national bank provides financial and banking services for its country's government and commercial banking system, and implements the government's monetary policy and issuing currency.

While comparing both central banks of Egypt and United States following features are identified,

Central bank of Egypt’s regulates banking system, formulates and implements policies, monetary policies and credit policies; issues banknotes; manages gold, foreign exchange reserves, manages Egypt's presence in the foreign exchange market and regulated it; supervises the national payments system; manages Egypt's public and private external debt.

Central banking system of United States is also known as Federal Reserve System. Central bank controls liquidity for economic growth in the financial system. It has three monetary policies. These are reserve requirement, use of open market operations to buy and sell securities from member banks, set targets on that guides rates for loans, mortgages, and bonds. Raising interest rates slows growth, preventing inflation.

2. a) Central Bank of Egypt established in the year 1961, Cairo. To supervise Central monetary authority, the banking sector and the implementation of the law to help enhancing the stability of the currency central bank formed. Central Bank of Egypt established to invest in FinTech startups of the country, CBE’s Sub Governor for Payment Systems and Information Technology. Central bank of United States established on December 23, 1913. Central bank of United States established with the MOTO to provide a safe nation with more flexible and more stable monetary and financial system.

B) Mandate of central bank of Egypt is to support of an IT regime, developed financial systems, macroeconomic stability and effective policy implementation tools. Another mandate is insuring a strong, safe and sound Banking System through its regulatory and supervisory role, managing the monetary policy of the Egyptian economic system. Two Mandates of central bank of United States is maximizing employment, stabilizing prices, and moderating long-term interest rates.

C) Central bank of Egypt’s incorporates criteria of financial autonomy, accountability, and transparency. Central bank of Egypt’s has the autonomy to design and conduct monetary policy, and the prohibition to finance the fiscal deficit. It maintains transparency on independence of monetary policy and to the reduction of inflation. Central bank of United States shows autonomy and accountability as it facilitates price and financial sector stability, which are conducive to sustainable economic growth. It has goal autonomy, target autonomy, instrument autonomy and limited autonomy.

D) When domestic bank has a shortage of funds, they borrow from the central bank based on the monetary policy. The Central Bank of Egypt maintained its domestic interest rate, deposit rate at 15.75%, the overnight lending rate at 16.75% and the main operation rate at 16.25%. The domestic interest rate of central bank of United States ranges at 2.25-2.5 percent. United States increases its interest rates by 0.25 percentage points, from 2% to an annual rate of 2.25%.