INTRODUCTION

This book examines central banking in 44 developing countries that appear to be reasonably representative of central banks in developing countries as a whole. The study starts by examining the achievement of this group of central banks in maintaining price stability, their primary stated objective. Because success has been elusive, we then examine the relationship between central banks and government financing, as fiscal exigencies certainly explain a considerable part of the difficulties central banks have faced in their price stability objectives. This analysis is followed by an examination of central banking activities in the foreign exchange markets, including the nature of the foreign exchange regime, why such a regime was chosen and what functions central banks perform in this area. The remaining chapters of the book examine the relationships between the central bank and the private sector. Here we cover both the implementation of monetary policy and the prudential regulation and supervision of the financial system. In all three general areas-government financing, foreign exchange systems and the domestic banking system-we find that central banks in developing countries face environments that differ radically from the environments faced by central banks in the richer OECD countries. Nevertheless, we detect some distinct changes over the past 25 years.