Monetary Policies

Also found in: Financial.

Monetary Policies


the totality of measures taken by states and central banks relating to money circulation and currency relations for the purpose of influencing the purchasing power of money, currency exchange rates, and the economy of a country as a whole. Monetary policies are determined by a society’s economic system and by the class nature of the state; they tie in closely with a country’s foreign trade and foreign trade policies as well as with its money circulation.

In capitalist countries monetary policy is mainly directed toward maintaining the purchasing power of money and strengthening the currency’s rate of exchange, which, however, is far from always being achievable in view of prevalent inflation. Under conditions of the general crisis of capitalism, and particularly in certain crisis periods, notably the 1930’s, monetary policies are directed especially toward lowering the purchasing power of money and the rate of exchange of the currency in order to dump the currency on the world capitalist market. The monetary policy of a capitalist state often takes the form of direct state intervention in foreign currency operations together with the simultaneous introduction of restrictions in the field of currency operations, a step which promotes the foreign trade of monopolies and helps them in their struggle to gain markets and new spheres for capital investment.

Monetary policies are carried out in the main in two ways: namely, through discount and through foreign exchange operations. The discount policy in international currency relations aims at regulating the currency rate of exchange by changing the rate of interest on loans. The raising of the rate attracts capital from countries where lower rates prevail, and this improves a country’s balance of payments situation and raises its currency’s rate of exchange. Conversely, the lowering of a country’s discount rate leads to an outflow of capital to other countries and to a decline in the currency’s exchange rate.

The foreign exchange policy aims at regulating the rate of exchange of the valuta through the purchase and sale of foreign valutas. If the rate of exchange of the country’s valuta declines, its central bank usually sells large amounts of foreign valutas. If the rate of exchange of the country’s valuta declines, its central bank usually sells large amounts of relation to foreign currencies. Conversely, the purchase of foreign currency leads to a fall in the exchange rate of that country’s valuta. In the circumstances prevailing today, direct intervention by a state in international currency circulation, particularly through the imposition of currency restriction, has acquired special importance.

Capitalist economists attribute to the monetary policies of capitalist states the ability to determine the purchasing power of money and the rates of their currencies, the movements of commodity prices, and the economic situation as a whole; and they even regard monetary policy as instrumental in ensuring a “crisisless” development of capitalism. In actuality, however, while exerting a somewhat restricted influence on the monetary and economic situation of a country, monetary policies are unable to cope with the uncontrollable and destructive effects of the economic laws of capitalism in currency matters.

In the developing countries, monetary policy is an important economic weapon in the development of foreign trade and in the improvement of their payment and trade balances. The monetary policies of developing countries are characterized by a wide application of currency restrictions: the currency may not be sold on the open market, transfers of national currency abroad are restricted, transfer operations are taxed, and citizens of the country are required to remit to the treasury any foreign currency in their possession in exchange for the national currency. These restrictions are intended to promote the national economy; they strengthen the position of the state in its transactions with other countries, increase its foreign currency holdings, and restrict the activity of foreign companies and their transfers of profits abroad.

The monetary policy of socialist states is carried out on the basis of the currency monopoly of the state. On the basis of the planned organization of the international transactions of each country, the goals of the socialist states’ monetary policies are to ensure that the currency entering the country is concentrated in the hands of the state and that it is used in the most expedient manner for strengthening the socialist economy and expanding international economic relations. The monetary policy of socialist states aims at defending the independence of the socialist economy and at safeguarding it against the influences of the arbitrary capitalist markets and against currency speculation or any other attempts capitalist countries may make to harm the foreign trade of socialist countries through various kinds of currency maneuvers.


Smirnov, A. M. Mezhdunarodnye valiutnye i kreditnye otnosheniia SSSR, 2nd ed. Moscow, 1960.
Frei, L. I. Kreditnaia i valiutnaia politika kapitalistichestkikh stran. Moscow, 1962.
Evreiskov, A. V. Krizis valiutnoi sistemy kapitalizma. Moscow, 1955.
Borisov, S. M. Mezhdunarodnye raschety i valiutno-finansovye protivorechiia stran Zapadnoe Evropy. Moscow, 1963.


References in periodicals archive ?
The underlying assumption is that monetary policies are important for describing and determining the observed inflation outcomes.
But even for this group, as 1993 unfolds, the prospect of disappointing growth and easing inflation points to less restrictive monetary policies.
It was recommended in the G-20 Summit of CACCI in Pittsburgh that to reduce the adverse effects of recession on trade and production activities monetary authorities should ease the monetary policies by reduction of interest rates, enhancing trade financing facilities and other expansionary measures.
Knight: I believe that accommodative fiscal and monetary policies can be quite effective in strengthening demand at times when the economy is weak and has a large output gap.
Travestying Tolstoy, one could say: "Every good monetary policy is (approximately) the same, but bad monetary policies are all different.
The Board believes that these joint responsibilities make for better supervisory and monetary policies than would result from either a supervisor divorced from economic responsibilities or a macroeconomic policymaker with no practical experience in the review of individual bank operations.
The worldwide credit crunch and subsequent recession and non-conventional monetary policies such as quantitative easing are also given extensive treatment.
It is certainly a stimulus for American exporters and will support expansionary fiscal and monetary policies to get the U.
Given their projections of some moderation in the business expansion and assuming appropriate fiscal and monetary policies, the members generally felt that any added inflation emerging in 1995 would likely be mild and could subside gradually during the year.
Observes changes in the formulation of monetary policies over the last 25 years
One member suggested that some further rise in inflation might reflect a typical development in a maturing cyclical expansion but that such a rise would not necessarily augur a permanent uptick in inflation or even that progress toward price stability would not continue to be made over time, provided appropriate monetary policies were pursued.
The Indian economy enjoys one of the most stable monetary policies across Asia.