Monetary policy in the finance of development

A leading issue in the finance of development, and one that is bringing several countries of the region to the cross-roads of fundamental decisions, concerns the interaction between growth and stability: the areas of consistency and the points of conflict. It is known to have exercised a major influence in the discussions between donors and aid-receiving countries, and is a primary concern of monetary and planning authorities within the latter. Central banks in developing countries perform two basic functions: one is to provide finance for development and the other is to stabilize the economy. The present chapter concentrates on the second of these and discusses the strategy of monetary expansion. The dangers of inflationary finance to the internal allocation of resources and to the external balance are well recognized in the statutory background of central banks in the region. On the other hand, the institutional and structural setting in developing economies limits both the mobilization of voluntary savings and the scope for taxation and has led to a frequent resort to central banks for the finance of deficits.

Sustainable Development Goals:

Decent Work and Economic Growth

Reduced Inequalities