A PRIMER ON MAJOR CENTRAL BANKS IN THE WORLD
Central banks are one of the major movers in forex trading. So it is important for every currency trader to know more about the major central banks worldwide. The article will highlight some of the most influential entities in the forex market, the house of the major currencies.
Almost 85% of the transactions in foreign exchange markets are done in the US dollar, which is governed by the Federal Reserve. The US central bank was established in 1913 through the Federal Reserve Act.
Also called Fed, its governing board is comprised of a chairman and board of governors, spearheaded by Chair Janet Yellen. The Federal Open Market Committee (FOMC) oversees open market operations, as well as monetary policy or interest rates. The committee has five of the 12 Federal Reserve Bank presidents and 7 members from the Federal Reserve Board.
European Central Bank
Founded in 1998, the European Central Bank governs the euro, the official currency of the European Union’s member states. ECB’s Executive Board is comprised of a president, vice president, and four other members, headed by President Mario Draghi. Its Governing Council is made up of six members from the Executive Board and governors of the national central banks of the 18 eurozone nations.
The ECB’s prime principle is geared towards price stability and general economic policies. Therefore, its main focus is on consumer inflation in making key interest rate decisions. The central bank has jurisdiction over monetary policy, and also has the right to issue banknotes based on its discretion. Policymakers can also interject in the event of bank or system failures.
Bank of England
Being the United Kingdom’s central bank, the Bank of England promotes the public good and benefit of British people by maintaining monetary and financial stability in the country. The BOE Monetary Policy Committee is composed of a governor, three deputy governors, a chief economist, and four external members, which is appointed directly by the Chancellor of Exchequer. Founded in 1694, the UK’s central bank is governed by Governor Mark Carney.
The committee’s objective include delivering price stability and uphold the government’s economic objectives including growth and employment. Aside from deciding on interest rates and monetary policy, it also sets a benchmark for consumer price inflation, which is 2%. But should the rate change, the BOE Governor has to notify the Chancellor of Exchequer through a letter.
Bank of Japan
Bank of Japan is the house of the Japanese yen, which was created in 1882. The central bank supervises monetary issuance, money market operations, and data or economic analysis. The BOJ Monetary Policy Board is composed of a governor, two deputy governors, and six board members, led by Governor Haruhiko Kuroda. While working on its own independence and transparency, the board acts on economic stability by exchanging views with the current administration.
The Japanese yen is technically complex but fundamentally simple. The currency has the tendency to trade as a carry trade component. Having a low interest rate, it is being pitted against higher-yielding currencies like the British pound, the Australian dollar, and the New Zealand dollar.
Bank of Canada
Like the US Federal Reserve, the Bank of Canada is conceived through the Bank of Canada Act of 1934. The central bank’s four key areas of responsibility include monetary policy, financial system, currency, and funds management. The BOC, led by Governor Stephen Poloz, is regulated by the Governing Council, which is made up of the governor, the senior deputy governor, and four deputy governors.
Sometimes treated as a corporation, the BOC has an inflationary benchmark of 2% to 3%. Since the country is still a major exporter of commodity, the Canadian dollar has a distinct relationship with crude oil. Having said that, many traders use the loonie either to hedge against current commodity positions or pure speculation.
Swiss National Bank
The central bank’s main mandate is to regulate Switzerland’s monetary policy as an independent central bank. Established in 1907, its main goal is to ensure price stability while accounting economic developments to cultivate economic growth.
The SNB Governing Board is made up of a chairman, vice chairman, and a member, plus three alternate members. The central bank is regarded as a governing body with private and public ownership. Technically speaking, it is a corporation under special regulations where more than half of the governing body is owned by the sovereign states of the country.
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