Organization structure of Kuwait Central Bank and the American Central Bank

American Central Bank is known as the Federal Reserve System. At the apex of its organization structure sits the board chairman. He serves along with other board members under him. The seven make up the Board of Governor (BOG). They are presidential appointees and must be approved by the senate for a period of 14 years. However, the chairman is appointed for a 4 year term by the president. Branching from the BOGs to the right is the twelve Federal Reserve District Banks. They are supervised by directors, three appointed by BOG and the rest by private commercial banks. Federal Reserve banks are managed by a president who is appointed by the director appointed for each Federal Reserve Bank. Under the Federal Reserve banks there are approximately 2700 member banks. These are various commercial banks in United States. Branching downwards from the BOG, there is Federal Open Market Committee (FOMC). It comprises of seven Fed governors and five president of reserve bank. Its main responsibility is to control money supply in the market (Hall & Lieberman 295).

Unlike the Federal Reserve System, Kuwait Central Bank organization structure is headed by Board of Directors (BOD) and not BOG. It comprises of a governor who chairs it, a deputy governor, ministry of Finance representatives, Ministry of commerce and industry representatives and other four members. Both governor and his deputy are appointed by decree, with approve of finance ministry in a five years renewable contract. As for the two ministry representatives, they are appointed by council of ministries (Al-Sabah 8). Far from the BOD, the organ breaks into other sector under executive directors. Such as supervision, operation and research sector, IT and banking operation sector and organization and administration. These are in charge of various small departments.

How the monetary policy is conducted by both Central Banks

First let’s try to do some general introduction of the concept of monetary policy. In the simplest form, these are measures for regulating the supply of money. One of the definitions adopted defines the concept as comprising of procedures and measures that monetary authorities take in order to deal with supply of money, exchange rates, interest and to manipulate credit condition in order to realize some economic objectives. Different countries have varying monetary policies because of variations in economic conditions. One of the main components of monetary policy that I wish to cover in this section is the various instruments available to monetary authorities to realize the main goal of the policy which is to stabilize the prices levels, high economic growth rates, high employment rates and to eliminate balance of payment imbalances (The Experience of Monetary policy…. 3). Tools available include changes in legal reserves ratio, open market operations, and central bank or discount rate. In most cases direct central bank instructions, complements these measures. Developing nations like Kuwait often use this latter tool because of their inflexibility in economic conditions, which limits their use of other tools.

To achieve the monetary policy goals for its monetary authority, Kuwait stabilizes its financial stability through banking system liquidity regulation and their supervision. Since there various economic conditions that affects Kuwait economic stability, Central Bank uses different instruments either for direct supervision or qualitative instruments. One of the key things they have been doing is to review the structure of KD interest rates. These include giving commercial banks instructions to reduce maximum interest rates for different types of loans (The Experience of Monetary policy… 9). Public borrowing strategies have also been adopted by central bank to cope with deficits in their budget. This involves direct market operations by sale of treasury bonds and bills.

The mandate of handling monetary policies in U.S. falls under the FOMC. They meet at least eight times in a year to address issues of inflation, output, unemployment, international exchange rates and interest rates. This committee is able to influence the money supply in the nation through opening market operations including selling and buying of bonds in public (Hall, & Lieberman 295). Using such measure the Fed is able to influence the equilibrium interest rates for instance in the market. The difference between the two monetary authorities is the manner in which U.S. is able to use the traditional tools like open market operations to stabilize money supply.

How the Federal Open Market Committee conducts monetary policy in the US society? Is there any similar entity that conducts the monetary policy in Kuwait?

Unlike in the U.S. where the role of ensuring that economic stability is realized is left for the FOMC, in Kuwait the central bank law mandates the Central Bank Board of Directors to achieve this objective. The two objectives that define the manner in which monetary policy should function are provided in Article 15 under its 1968 Law No. 32. They are in clauses (a), (b) and (c). According to Article (23) of this law, the board should meet at least eight times in a year. Article (26) of the Law, also stipulates that the Board of Directors has the powers to draft and exercise monetary policies. It include provisions for developing the credit and monetary policy for the bank, making of decisions pertaining to money supply increase or decrease, and fixing of interest rate to be charged by the central bank. Due to lack of independence in control of monetary policy this permits political interference in the policies developments. For instance, the law under Article (27) allows ministry of finance to have excessive powers over the board’s decision pertaining to manner of handling monetary and credit policy (Al-Sabah 39).

Works Cited

Al-Sabah, Sabah Al-Salim. Central Bank of Kuwait Law: Introduction. 1968. JSTOR PDF Files.

Hall, Robert Ernest, & Marc, Lieberman. Macroeconomics: Principles and Applications. Australia. Cengage Learning, 2007. Print.

“The Experience of Monetary Policy in Kuwait and its Directions During the Nineties in Light of the Main Recommendations of the Joint Economic Report”. Kuwait Economic Society lecture, Kuwait, on 28 January 1990. JSTOR PDF files.