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Guide to Major Central Banks

Economics and Currency

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Each of the world’s major central banks is different. Each nation has a central bank which manages and controls its currency. The job of the central bank is to stabilize the currency while growing the economy for the people. Most focus on stabilizing inflation around a set range level, typically 2% to ensure that there is no price driven shocks to the economy.

Federal Reserve

The Federal Reserve Bank is the world’s most influential bank. The United States Dollar is currently the world’s most used reserve currency and is also involved in the vast majority of foreign exchange transactions. The Federal Open Market Committee (FOMC) has 7 Governors and 12 individual district banks. The Federal Reserve (“The Fed” in Shorthand) has a policy mandate that consists of 2% annual inflation as measured by annual change in the price index for personal consumption expenditures while avoiding deflation, and an unemployment rate that is close to maximum. The exact number isn’t stated, but the longer term expectation is below 5%. The FOMC meets 8 times a year to discuss monetary policy.

Bank of England

The Bank of England has a 9-member committee called the Monetary Policy Committee. This group consists of a governor, two deputy governors, 2 executive directors, and 4 external experts. Their mandate is price growth stability, aiming at a 2% annual inflation rate. Above this level, you will typically see deflationary policies implemented, including rate hikes. Below this level, you will see active attempts to inflate the economy via stimulatory measures.

Bank of Japan

The Bank of Japan is controlled by a Monetary Policy Committee. The policy committee has a Governor, Two Deputy Governors, and six other members. Unlike other central banks, the Bank of Japan oversees a severely export based economy. They have an extreme aversion to preventing a strong currency and treat deflation like a plague. They will actively engage in deflationary and currency devaluating measures if needed to avoid a strong Japanese Yen. Much like other central banks, they focus on an inflation mandate of 2%, as measured by the Consumer Price Index. Above this level, you will typically see deflationary policies implemented, including rate hikes. Below this level, you will see active attempts to inflate the economy via stimulatory measures. They meet monthly to decide policy measures to stabilize inflation at that level.

European Central Bank

When the Eurozone was established in 1999, it needed a singular central bank to operate the currency across its eleven nation states. The European Central Bank (ECB) was created to maintain price stability in the currency. The governing council of the bank consists of six members from the ECB’s executive board, plus governors from each individual central bank in the 19 European area nations. The central bank mandate is below 2% inflation, but without suffering from deflation, while maintaining price stability and growth. Above this level, you will typically see deflationary policies implemented, including rate hikes. Below this level, you will see active attempts to inflate the economy via stimulatory measures. They also avoid a strong currency, which hurts their export markets.

Swiss National Bank

The Swiss National Bank consists of 3 people who decide monetary policy.  The SNB is a joint-stock company which is 55% owned by Swiss Public Shareholders and 45% owned by private individuals. The bank is supervised by the Swiss Confederation, which has no shareholdings. The Swiss approach to monetary policy consists of 2% or less inflation annually, while simultaneously avoiding deflation. Above this level, you will typically see deflationary policies implemented, including rate hikes. Below this level, you will see active attempts to inflate the economy via stimulatory measures. The bank relies mostly on mid-term inflation forecasts to determine policy decisions. The SNB is less active than many other central banks and meets approximately 4 times a year.

Bank of Canada

The Bank of Canada consists of a Governing Council, constructed of a Central Bank Governor, Senior Deputy Governor, and Four Deputy Governors. They operate with a mandated target of 2% inflation, the middle of a 1% to 3% allowable range in inflation. Above this level, you will typically see deflationary policies implemented, including rate hikes. Below this level, you will see active attempts to inflate the economy via stimulatory measures. This target is set by the Bank of Canada and the Canadian Federal Government and reviewed once per each five years.

Reserve Bank of Australia

The Reserve Bank of Australia has a Central Bank Governor, Deputy Governor, and six members from the regular government. It has a goal of price stability and near full employment while delivering economic wealth to the people of Australia. They have a target of 2% to 3% inflation annually. Above this level, you will typically see deflationary policies implemented, including rate hikes. Below this level, you will see active attempts to inflate the economy via stimulatory measures. They have eleven meetings, typically first Tuesday of the month, but do not meet in January.

Reserve Bank of New Zealand

The Reserve Bank of New Zealand dictates the monetary policy of New Zealand. The policy is determined principally by the Governor. There are also 2 Deputy Governors and an Assistant Governor. The bank attempts to ensure price stability while avoiding extreme fluctuations in economic output and currency values. The RBNZ focused on a specific Policy Target Agreement, which focuses on a 1% to 3% inflation range with a 2% specific target. Above this level, you will typically see deflationary policies implemented, including rate hikes. Below this level, you will see active attempts to inflate the economy via stimulatory measures. The bank focuses on keeping this specific rate, and a failure to do so may eventually result in a replacement of the Governor.

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International Economic Analysis:

  • Major Currency Economic Summaries
  • Performance of Major Imports and Exports
  • Mandates of Central Banks versus Expectations
  • Performance Indexes of Major Economies
  • Economically Correlated Currency Projections
  • Large Funds Currency Sentiment Readings
  • List of Technical Indicators to Look For
  • Occasional: Foregin Exchange Technicals Markups

American Markets Analysis:

  • Summaries of American Economic Structure
  • Performance of Major
  • Imports/Exports
  • Federal Reserve Mandate versus Expectations
  • Performance Indexes of U.S Economy
  • Economically Correlated U.S Dollar Projections
  • Large Trading Fund Index Sentiment Readings
  • Market Wide Earnings Versus Valuations
  • Fundamental Ranking of U.S Business Sectors
  • Best and Worst Future Consensus Estimates
  • Occasional: Firm Fundamental Strength Report
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