chapter  5
19 Pages

THE INSTRUMENTS OF MONETARY POLICY

As the features of the US banking system provided the example by relation to which the organisational structure and constitution of the Bundesbank were determined, so also for the range and type of monetary instruments available to the Bundesbank. Thus the instruments possessed by it are largely the same as those of the Federal Reserve System, even if their design may differ in some details. There does exist, however, a basic difference in the way in which the instruments are used, or better in the emphasis placed upon individual instruments. This is due above all to the special features of the way in which central bank money originates in the Federal Republic, viz. the dominance of the external and financing components of the money supply as compared to the fiscal component. For in contrast not merely to the USA but to Britain as well, central bank money has originated in the Federal Republic above all through the growth of foreign exchange reserves and the indebtedness of the banks with the Bundesbank. In the USA and Britain on the other hand, the indebtedness of the state to the central bank has been of far greater significance for the creation of "high-powered money". Consequently, for the Bundesbank the instruments relating to foreign trade and payments and sources of credit, but also minimum reserve policy, have been of special significance, while in the USA open market operations have been of more importance.