Dec 13 - 19, 2010

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest to attain a set of objectives oriented towards the growth and stability of the economy. These goals usually include stable prices and low unemployment. Monetary theory provides insight into how to create optimal monetary policy.

Monetary policy is also referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy rapidly, and a contractionary policy decreases the total money supply, or increases it slowly. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates to combat inflation. Monetary policy is contrasted with fiscal policy, which refers to government borrowing, spending, and taxation.

Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply of money. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflation, exchange rates with other currencies and unemployment. Where currency is under a monopoly of issuance, or where there is a regulated system of issuing currency through banks which are tied to a central bank, the monetary authority has the ability to alter the money supply and thus influence the interest rate (to achieve policy goals). The beginning of monetary policy as such comes from the late 19th century, where it was used to maintain the gold standard.

There are several monetary policy tools available to achieve these ends: increasing interest rates by fiat; reducing the monetary base; and increasing reserve requirements credit quality, exchange rates, inflation targeting, international capital flows, fixed exchange rate, consumer price index, and gold standard. All have the effects of contracting the money supply and, if reversed, expand the money supply.

Within almost all modern nations, special institutions (such as the Federal Reserve System in the United States, the Bank of England, the European Central Bank, the People's Bank of China, and the Bank of Japan) exist which have the task of executing the monetary policy and often independently of the executive. In general, these institutions are called central banks and often have other responsibilities such as supervising the smooth operation of the financial system.

Foreign exchange reserves (or forex reserves) in a strict sense are only the foreign currency deposits held by central banks and monetary authorities. However, the term foreign exchange reserves in popular usage commonly includes foreign exchange, gold and IMF reserve position as this total figure is more readily available, however it is accurately deemed as official reserves or international reserves. These are assets of the central banks, which are held in different reserve currencies such as the dollar, euro, yen, and pound and which are used to back its liabilities, e.g. the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions.

The countries with the largest foreign reserves are Japan, the People's Republic of China (mainland only, excluding Hong Kong and Macao), Taiwan, Hong Kong, the Republic of Korea, India.

The specific form of foreign exchange reserves: Governments' short-term deposits abroad in foreign cash or other payment instruments, such as foreign securities, foreign bank checks, promissory notes, foreign currency drafts.

Exchange rate fluctuations can have significant impact on these numbers.

Foreign exchange reserves are mainly used for payment of settlement of the balance of payments deficit. The main form of foreign exchange reserves, the government's short-term deposits abroad, the other can be realized in the foreign means of payment, such as foreign securities, foreign bank checks, promissory notes, foreign currency drafts.

Following are countries and territories and their recent foreign exchange reserves (in millions of US Dollar): People Republic of China (2,648,300), Japan (1,050,236), Eurosystem-27 countries (753,642), Russia (501,100), Saudi Arabia (410,300), Republic of China (Taiwan) (380,505), India (295,792), Republic of Korea (293,350), Brazil (287,206), Hong Kong (266,100), Switzerland (249,556), Singapore (214,662), Germany (205,754), Thailand (183,651), France (154,562), Algeria (150,000), Italy (144,849), United States (136,532), Mexico (108,385), Malaysia (105,300), Iran (100,000), United Kingdom (96,968), Poland (93,077), Indonesia (91,880), Turkey (76,832), Denmark (72,658), Israel (63,409), Philippines (56,849), Canada (55,393), Argentina (51,094), Norway (49,078), Iraq (48,77), Sweden (46,626), UAE (45,00), Peru (43,693), Romania (43,656), Hungary (43,167), Lebanon (38,600), South Africa (38,283), Netherlands (37,753), Czech Republic (37,219), Australia (36,342), Nigeria (35,041), Egypt (35,223), Ukraine (30,876), Brunei (30,000), Spain (29,500), Kazakhstan (28,231), Azerbaijan & Colombia (26,000), Belgium (25,138), Chile (24,861), Vietnam (20,700), Morocco (20,006), Macau (18,730), Portugal (l18.199), New Zealand (18,010), Pakistan (16,773), Bulgaria (15,123), Croatia (12,629), Jordan (11,859), Bangladesh (10,550), Finland (9,950), Bolivia (9,026),Tunisia (8,934), Trinidad and Tobago (8,788), Uruguay (7,747), Sri Lanka (7,000), Latvia (6,855), Lithuania (5,958), Belarus (5,778), Greece (4,915), Costa Rica (4,042), Iceland (3,924), Myanmar (3,560), Estonia (3,523), El Salvador (2,631), Cambodia (2,522), Ireland (2,024), Slovakia (1,899),Georgia (1,864), Armenia (1,784), Kyrgyzstan (1,571), Moldova (1,422), Cyprus (1,164), Slovenia (998), Luxembourg (765), Laos (712), and Malta (399).

The increases in foreign exchange reserves of any country depends on production and availability of surplus agricultural and industrial products for the purpose of exports.

There are some factors which cause the downfall in the progress of a country and accordingly the decrease of foreign exchange reserves: lawlessness problems, sectarian violence, corruption, nepotism, bribery, violence, decrepit morale values, promotion of sexual behavior, usury, fanaticism, bigotry, blackmailing, larceny, bargaining, thievery, stupidity, ineptitude, dullness of mind and soul, terrorism, bloodshed etc. One must be loyal and sincere to his country.