Question

What Pro's and Con's do you envision coming from one Global Central Bank (list and discuss)? Given your reasoning should there be one Global Central Bank?

How is money supply growth affected by an increase in the reserve requirement ratio? Assume that the reserve requirements ratio is 5%. How much the money supply will increase after the injection of $100 million?

Do you think that large financial institutions should have been rescued by the Fed during the credit crisis? Why Lehman wasn't rescued?

Answer 1

1. Global central bank like IMF issues forecasting of global degrowth at less than 3% which is cause of big concern and can lead to widespread recession. However the only advantage it creates is reduced inflation and excessive appreciation of commodity prices.
2. Money supply increase if reserve requirement ratio is lowered since banks have to now park aside lesser money than before and hence can release money supply in market efficiently. Maximum money supply released can be 100 milliin dollar ×1/0.05=2000 million dollars. =2 billion dollars.
3. No point in rescuing large financial organisations as it can again lead to much bigger crisis And can add substantial debt onto Fed balance sheet. The reason Fed did not buy out is its lineant frameworks and protocols in credit supply and lack of risk management committes. Also it is best in such cases that only private sector becomes lender and who is ready to take on debt and scale bank sustainability