Monetary policy: objectives, definition and concept

The economy of the state is developing largely due to the implementation of monetary policy by the financial authorities of the country. What is its essence? Which of its methods are most common?

What is the essence of monetary policy?

The term "monetary policy" is usuallyis considered in the context of the activities of the Central Bank of the state or other structure performing those functions that are consistent with the Central Bank. In particular, such as:

- regulation of the activities of the subjects of the financial system, the credit market;

- licensing of commercial banks;

- management of inflation;

- implementation of monetary policy;

- assistance in managing the state's budget capital.

Another name for the concept under consideration is "monetary policy". The activities of the Central Bank and similar structures that conduct it, has certain objectives. Let's consider what they can be.

Monetary Policy Objectives

The key objectives of monetary policy, in general, correspond to the functions of the CBR, which we mentioned above. These are about the following purposes:

- containment of excessive inflation;

- ensuring the social protection of citizens;

- management of the capitalization of key sectors of the economy;

- ensuring the optimal balance of payments of the national economy.

These goals are set by the Central Banksmost of the states, including the Bank of Russia. It will be useful to consider the main approaches to the classification of such a direction of the financial authorities of the country as monetary policy. Its objectives can be the same in this case - in accordance with the list we have considered.

Approaches to the classification of monetary policy

Experts identify two main types of monetary policy:

- conservative;

- Liberal.

The first type of monetary policy is aimed atthe implementation of activities that regulate the work of financial institutions - private and public, and suggest limiting the dynamics of lending operations. So, the Central Bank can, by setting a high key rate, stimulate a similar increase in lending conditions by private financial institutions.

In this case, specific goals are achievedmonetary policy. Such as, first of all, reducing inflation, as well as ensuring a positive balance due to indirect incentives to reduce imports. The type of monetary policy in question also implies an increase in the tax burden on enterprises, a reduction in budget expenditures, and optimization of import substitution.

Liberal monetary policyinvolves stimulating the growth of the credit market, reducing control over capital turnover in the economy, tax rates, as well as interest on loans. The Central Bank, having lowered the key rate, can stimulate the implementation of similar actions by commercial banks.

The corresponding monetary policy aims, as a rule, the following:

- an increase in the capitalization of the economy,

- stimulation of business activity,

- Optimization of the balance of payments - but due to increased exports.

What determines the choice of the state of this or that variety of monetary policy? How are the priorities of the monetary policy of the central bank determined?

Typically, this depends on the current levelstability of the financial system of the state, as well as the dynamics of the country's economy as a whole. If the national economy is a developing country, it may be acceptable for the Central Bank to choose a liberal strategy: it, as a rule, promotes investment, stimulates business activity in the conditions of unoccupied market segments.

In case there is a crisis in the economysituation, the objectives of the state's monetary policy may change. In this case, there may be a need to reduce the level of inflation. As we noted above, conservative monetary policy contributes to this goal. Its goals, therefore, largely reflect the economic situation in the state. If the national economy develops dynamically - the monetary policy can be characterized by some attributes, at crisis tendencies - other.

Another common criterion for the classification of monetary policy is the scale. So, they sing out total and selective methods of regulating the economy. Let's consider their features in more detail.

The scale of monetary policy

First of all, it is worth noting that both studiedabove the type of monetary policy, conservative and liberal, can be both total and selective. The difference between the considered varieties of approaches to the management of the financial system is therefore predetermined by the scope of the jurisdiction of decisions taken by the Central Bank.

So, if the Central Bank implements a total monetarypolicy, then his orders apply to all credit and financial institutions operating in the state. The objectives, methods of monetary policy can be in this case related to the need to stimulate the development of key sectors in the economy, to modernize the banking infrastructure of the state.

Selective policy of financial structuresinvolves extending the jurisdiction of decisions taken by the Central Bank to a limited number of financial institutions. So, the Central Bank, implementing a selective policy, can:

- Set limits on calculations;

- determine the lending standards;

- establish separate criteria for the effectiveness of commercial financial organizations.

In this case, the Central Bank's goal may be optimizationspecific elements of the state credit system, improving the payment infrastructure, improving the standards, under which various payment transactions are carried out.

In practice, the goals and objectives of the monetarypolicy of the state, that is, the Central Bank or similar institutions, change quite often. This is due to constant changes in economic processes inside and outside the state, with the influence of socio-political factors, technological progress. Thus, the Central Bank can regularly use all the noted types of monetary policy - and, in different combinations and order.

Certainly, in some sufficiently longperiods, the state can choose priority methods of managing economic processes and to a lesser extent use alternatives to them. But with a significant change in the external environment, the influence of political factors, the Central Bank may reconsider its own approaches to the implementation of monetary policy.

It will be useful now to consider specific instruments through which the Central Bank regulates economic processes in the country.

Instruments of Monetary Policy of the State

Modern economists singled out the following list of the main instruments in question:

- establishment of norms on reserves of commercial banks;

- participation of the Central Bank in transactions on stock exchanges;

- setting a key rate;

- regulation of commercial credit organizations.

Let's study them in more detail.

Reserve requirements for commercial banks

The first tool from the list consideredabove, is considered as one of the key, since it allows the Central Bank to exert a significant influence on the ratio of demand and supply of capital in the economy of the state. The fact is that the volume of own reserves of a commercial credit and financial institution directly determines the capabilities of a bank acting as a lending entity. If the requirements set by the Central Bank for the relevant resource are high, then the activity of banks in the relevant segment of the financial market is reduced. As a result, the capitalization of the economy in terms of the real sector is reduced, however, it can increase from the point of view of the capital intensity of the financial sphere, deposits of citizens.

Toughening requirements for commercial reservesbanks can help to reduce inflation and achieve other goals of monetary policy that require conservative approach. Is the tool in question effective from the point of view of solving strategic tasks in the economy?

In the environment of experts opinions on this matter are different. Some analysts believe that changing the reserve requirements should be a temporary measure, while others believe that the CBR should regularly use the appropriate tool - especially often in a crisis and uncertainty of various processes in the national economy.

Participation of the Central Bank in operations on stock exchanges

The next common instrument of monetarypolicy of the Central Bank - regulation of transactions on stock exchanges. Appropriate financial institutions are open market sites. Including those that involve transactions for the sale and purchase of securities issued by the state, as well as the largest enterprises that operate in the country.

The CB in this case can be an active playermarket, buying or selling those or other types of securities. As a rule, the Central Bank participates in transactions reflecting the turnover of government bonds. If he buys them, this shows that the monetary policy pursued by him is pursued by those that characterize a liberal approach to regulating the economy. That is, the state or the largest companies, having received capital from the Central Bank, can direct it to invest in new projects (budgetary, commercial), to stimulate the development of certain industries.

In turn, the sale of securities mayto testify that the objectives of the monetary policy of the Central Bank are related to the implementation of a conservative approach to the management of economic processes - since in this case market capitalization is declining.

Setting a Key Rate

The next instrument of the Central Bank is the establishment of a key rate. This indicator, as we noted above, predetermines the conditions for lending in the market as a whole.

Thus, the CBR's high key rate can speakthat the purpose of the monetary policy of the Bank of Russia is to reduce the dynamics of capitalization of certain sectors of the economy at the expense of borrowed funds, as well as to reduce inflation. At the same time, the high key rate of the Central Bank, as a rule, stimulates the attraction of citizens' money to banks in the form of deposits - at a high interest rate. As a result, capitalization, in turn, grows in the credit and financial organization.

Regulation of financial transactions of commercial banks

Another important direction of the monetarystate policy - regulation, setting standards for the work of commercial banks. It is carried out in connection with the fact that the financial authorities need to ensure the stability of the functioning of the banking system as one of the key resources for the implementation of monetary policy.

Commercial lending institutions play a rolethe most important financial institutions of the state. They must have a stable infrastructure and carry out activities in accordance with strict regulations - so that their clients, citizens, businesses and budget structures have the opportunity to use protected and accessible services. The main objectives of the state's monetary and credit policy also imply the most active involvement of this infrastructure. The task of the Central Bank is to ensure effective legal regulation of its alignment and modernization.

Monetary Policy of the Bank of Russia: Key Priorities

It will be useful to consider which prioritiesadheres to the Russian Central Bank in monetary policy. We noted above that the Central Bank, as the main financial institution of the state, chooses one or another approach in managing economic processes based on the state of affairs in the national economy, the real factors affecting the development of the economy. The corresponding principle is also characterized by the Russian Central Bank.

This credit institution, as thepractice, implements mostly conservative strategies during periods of recession and liberal - with the growth of the state economy. Thus, in the crisis of 2008-2009, the CBR's key rate was significantly increased: it slowed down the lending market, significantly reduced capitalization in the economy, but, at the same time, largely helped to keep inflation at an acceptable level. After overcoming the crisis, the key rate decreased: the Central Bank moved to a liberal policy of managing economic processes.

Due to falling oil prices and complicationsthe international relations of Russia in the economy of the Russian Federation in 2015, a recession has come again. The Central Bank has raised the key rate and continues to keep it at a fairly high level. The level of inflation - if we consider it as the main criterion for the effectiveness of monetary policy, as shown by statistical data, is in the RF at an acceptable level.

Again, we note that among economists there isdifferent assessments of the approaches of the CBR to regulating the economy: there is a view that the key rate should be reduced and stimulated lending, as a consequence - to increase the level of capitalization of various sectors of the national economy.

Summary

So, we examined the essence, the main goals andinstruments of the monetary policy of the state, which is also called monetary. Its main subject is the Central Bank. In his charge - the regulation of inflation, balance of payments, the key rate, the regulation of the activities of commercial financial institutions, which also play a crucial role in the implementation of the state's monetary policy. Depending on the economic situation inside the country, beyond its borders, the influence of socio-political factors, the Central Bank can choose one or another monetary strategy, as well as specific tools for its implementation. In general, they reflect one of two approaches: conservative - assuming a reduction in the capitalization of the economy or its key industries, or liberal - characterized by the desire of the Central Bank to stimulate an active exchange of capital by market participants.

If necessary, one approach can replaceother. For example, with the appearance of factors contributing to the economic recession, the goals of Russia's monetary policy, as a rule, reflect the desire of financial authorities to reduce the volume of capitalization of the economy. This looks like the Central Bank’s increase in the key rate, in some cases - a change in the reserve requirements for commercial credit institutions. But as soon as the economic situation in the state stabilizes, the Central Bank, as a rule, reduces the key rate.