Monetary
Policy Tools
As primary instruments for monetary policy, the
Central Bank of Afghanistan uses the sale of currency and the capital note
auction to control the reserve money.
1.
Auction Sale of Currency: Under currency trading
regulation, the Central Bank of Afghanistan sells foreign currencies to
licensed commercial banks and authorized money exchange dealers through a free
and transparent auction process on bi-weekly basis.
2.
Capital Note Auction: the second tool the Central Bank
uses to control the RM is the auction of capital note, which is sold to
commercial banks once a week. To further use the latter instrument that help
decreases dependence on the sale of foreign currencies, the Central Bank
announced the capital note with 7 day maturity along with capital notes with
28, 182 and 364 days of maturity, leading to an increase in investment on the
capital notes. Nevertheless, the Central Bank of Afghanistan is working to
raise the role of the instrument in controlling liquidity by promoting the capital
note secondary market.
In the meantime, Da Afghanistan Bank holds other
monetary instruments like Required Reserves, which is also used for the
implementation of monetary policy in addition to ensuring
contingency-surveillance objectives. At the moment, in Afghanistan, the
required reserve ratio is 8 percent.
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