Limiting Central Bank Credit to the Government: Theory and Practice

Occasional Papers, September 15, 1993

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Examines central bank independence with reference to constraints on central bank credit to the government.
Focuses on how such credit should be regulated.
Discusses why credit should be constrained, in which forms it should be constrained, and how to implement those constraints.

Rationale for constraining central bank credit to the government:
- Preserving central bank independence.
- Controlling monetary expansion and associated inflationary risks.
Forms of credit and how constraints differ by form:
- Direct advances/loans from the central bank to the government.
- Indirect mechanisms (implied by discussion of different forms of credit in the summary).
Implementation approaches:
- Regulatory and institutional measures to limit central bank credit.
- Practical considerations for enforcing constraints while maintaining monetary and fiscal operations.

Subjects: Balance of payments, Bank deposits, Banking, Central bank autonomy, Central bank credit, Central banks, Credit, Current account, Financial institutions, Financial services, Monetary base, Monetary expansion, Monetary policy, Money, Securities
Keywords: Bank deposits, Caribbean, central bank, Central bank autonomy, central bank credit, Central bank credit, central bank grant, central bank vis-à-vis, central bank's independence, Credit, Current account, Europe, GDP ratio, government, government market interest rate, independence, inflation performance, market rate, members of the European Community, Monetary base, Monetary expansion, OP, Securities, West Africa

Limiting Central Bank Credit to the Government: Theory and Practice — Carlo Cottarelli, Occasional Paper No. 1993/008 (September 15, 1993).