The Bank of Japan has deviated from the Federal Reserve model in terms of independence. Although its Policy Board is still fully in charge of monetary policy, changes are still subject to the approval of the Ministry of Finance (MOF).
The BOJ targets the M2 aggregate. On a quarterly basis, the BOJ releases its Tankan economic survey. Tankan is the Japanese equivalent of the American tan book, which presents the state of the economy. The Tankan's findings are not automatic triggers of monetary policy changes. Generally, the lack of independence of a central bank signals inflation.
This is not the case in Japan, and it is yet another example of how different fiscal or economic policies can have opposite effects in separate environments. The Bank of England may be characterized as a less independent central bank, because the government may overrule its decision. The BOE has not had an easy tenure.
Despite the fact that British inflation was high through 1991, reaching double-digit rates in the late 1980s, the Bank of England did a marvelous job of proving to the world that it was able to maneuver the pound into mirroring the Exchange Rate Mechanism. After joining the ERM late in 1990, the BOE was instrumental in keeping the pound within its 6 percent allowed range against the deutsche mark, but the pound had a short stay in the Exchange Rate Mechanism.
The divergence between the artificially high interest rates linked to ERM commitments and Britain's weak domestic economy triggered a massive sell-off of the pound in September 1992. The Bank of France has joint responsibility, with the Ministry of Finance, to conduct domestic monetary policy. Their main goals are non-inflationary growth and external account equilibrium. France has become a major player in the foreign exchange markets since the ravages of the ERM crisis of July 1993, when the French franc fell victim to the foreign exchange markets.
The Bank of Italy is in charge of the monetary policy, financial intermediaries, and foreign exchange. Like the other former European Monetary System central banks, BOI's responsibilities shifted domestically following the ERM crisis. Along with the Bundesbank and Bank of France, the Bank of Italy is now part of the European System of Central Banks (ESCB).
The Bank of Canada is an independent central bank that has a tight rein on its currency. Due to its complex economic relations with the United States, the Canadian dollar has a strong connection to the U.S. dollar.
The Bank of Canada is an independent central bank that has a tight rein on its currency. Due to its complex economic relations with the United States, the Canadian dollar has a strong connection to the U.S. dollar.
The BOC intervenes more frequently than the other G7 central banks to shore up the fluctuations of its Canadian dollar. The central bank changed its intervention policy in 1999 after admitting that its previous mechanical policy, of intervening in increments of only $50 million at a set price based on the previous closing, was not working.
