Recent Trends in Monetary Policy

It is generally agreed that since our entry into the European Monetary System (EMS) and the establishment of exchange controls the conduct of monetary policy has become a more important element of general economic policy. In recent times, considerable attention and discussion has been devoted to the control of one element of monetary expansion, i.e. bank lending to the private sector. On the other hand, there has been much less attention to public sector credit creation. 



This paper outlines a framework for monetary policy which links both private and public sector credit creation. Recent experience of monetary expansion is examined and the role of fiscal policy in facilitating monetary stability is outlined. The conclusion is that unless Government borrowing is significantly reduced from its current level, excessive monetary creation will continue to put pressure on the external reserves and ultimately the exchange rate.