All India Management Association (AIMA) 2007 M.B.A Marketing Management Central Banking

Today, focus is on the responsibility the Central Banks have for keeping the value of money stable, for keeping inflation low, rather than on their responsibility for the financial system. The ques. now is to what extent the Central Banks make a contribution to economic growth and social justice by keeping the value of money stable.
Nobody seriously doubts that both hyperinflation and significant deflation can do real damage to economic growth and that by avoiding both Central Banks can make considerable contribution. But what about the contribution to growth from keeping inflation in low single figures, as compared to the double-digit inflation which endured during much of the '70s and '80s,
Perhaps inevitably, this is still a matter of ongoing debate among economists.
a few claim that the contribution is negligible because beyond avoiding the catastrophies of hyperinflation and significant deflation, the contribution which inflation control makes to economic growth is very small. Others see a rather larger contribution, through the fact that the pricing system works more efficiently to allocate resources when prices are on an avg. stable; for example, through the avoidance of the distortions caused by the interaction of inflation and a tax system based on the assumption that prices are stable.
To see this latter point vividly, the distortions caused by the interaction of even quite modest levels of inflation with a tax system designed on the assumption that prices are stable as being particularly relevant to the way in which keeping inflation under tight control can assist economic growth, it is hard to escape the conclusion that 1 of the reasons for New Zealanders' relatively heavy investment in property assets, and relatively low investment in financial assets in latest decades is related to the fact that, under the current tax regime, inflation outcomes in an "under-taxation" of property investment and an "over-taxation" of financial assets. And if, as many believe, an increase in the government's share of GDP is associated with lower economic growth.This is a different way in which inflation damages growth.
In many ways, keeping the value of money broadly stable makes a bigger contribution to social justice than it does to economic growth. When money is not stable, in other words, there is inflation or deflation, the value of financial assets and liabilities modifications in potentially major and unexpected ways.
Therefore, Central Banks can probably make a few modest contribution to pattern growth through keeping inflation low and stable and can help avoid the social injustices often caused by unstable money.

Earning:   Approval pending.