Monetary policy: Definition, types and tools

cointelegraph.com:

Monetary policy refers to the actions taken by a central bank or monetary authority to manage the supply of money and interest rates in an economy, with the aim of promoting economic growth and stability. To affect the price and accessibility of credit, this may entail altering the money supply, setting interest rates or utilizing other instruments. 

The ultimate goal of monetary policy is to achieve and maintain a healthy economy. This usually involves balancing multiple objectives, such as:

To ensure economic stability, lessen the effects of economic shocks and promote sustainable economic growth, central banks carefully control the money supply and interest rates. However, depending on the unique circumstances and requirements of each economy, monetary policy’s exact goals and tactics may change.

There are two main types of monetary policy:

The tools used to implement monetary policy can be broadly categorized into three types:

Other tools used less frequently include discount window lending, moral suasion and direct controls on bank lending.

To achieve macroeconomic goals such as price stability, full employment and economic growth, central banks like the Federal Reserve in the United States set and implement monetary policy for fiat currencies. To affect the money supply and demand in the economy, central banks employ a variety of monetary policy measures, including changing interest rates, conducting open market transactions and imposing reserve requirements.

Related: Crypto resonates better with BIS’ vision of ideal monetary system

On the other hand, cryptocurrencies like Bitcoin (BTC) use a decentralized monetary policy, which refers to the approach of controlling the supply of money in a cryptocurrency that is based