Because there’s an overwhelming probability that someone who did believe in central planning and credit expansion would come in and make this a reality than if the non-interventionist was in and refused to intervene. This would likely result in a less effective market, increases in government spending and power, and recession.
Stop fixing the interest rate and let the market set the rate no matter how high or low.
Legalize other currencies, foreign and domestic, as legal tender ie be allowed to pay taxes in multiple currencies.
Ending all banking and finance regulations.
Some of these might be outside the scope of your power, but you could at least work to encourage a move in this direction:
End all tariffs on imports and exports. Modernise the customs facilities and phase them out in to privately held security and voluntary inspection and handling.
Overhaul tax system by phasing in to a system where taxation is voluntary.
I think the purpose of my post might have gotten a little lost… As interesting these ideas are for Nigera’s economy, I am not interested in a ‘thought experiment’ at the moment.
I want to know how Interest rates are set in the real world..
My current understanding now is this: When the Governor of the bank of england (George Osbourne really) wants to increase the interest rate from 0.5% to 1% he will buy a number of Guilts with money ‘borrowed’ from treasury?
This decreases the money supply and so increases the value of the currency?
Or is it the other way around..
This is how interest rates are determined
The government can move the downward sloping curve from right to left but in the long run this will change the demand curve in a way that is ultimately unpredictable.
QE seems to involve buying or selling large amounts of state bonds/
A central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions with newly created money in order to inject a pre-determined quantity of money into the economy. This is distinguished from the more usual policy of buying or selling government bonds to keep market interest rates at a specified target value.
start printing lots of money.
and brainwash people into ignoring the effects of inflation.
???
profit.
/troll
Ah now I think I’m beginning to understand.. so the action of QE and setting interest rates *are one and the same.. but the difference is the source of the money used (printed money instead of debt)
But I still need to know ‘how’ to do it..
My currencies interest rate is 10% and I want to drop it to 9%.
How do I know how many bonds I need to buy to cause a 1% drop in the rate?
The schooling system in my country is not very good and I am worried we do not have enough skilled Mathematicians to work it out.
The schooling system in my country is not very good and I am worried we do not have enough skilled Mathematicians to work it out.
Privatize the education, then wait for a few years.
I understand that working out the yeild on bonds is extremely difficult.. as you have to work out the inflation rate within the repayment period and when a government buy its own bonds it also has to factor in the saving of coupon payments.
But it is for this reason I find it a very strange method to control a montery policy with, If I can’t workout by how much the money supply has been effected by my actions.. how can the open market have any confidence in it either?
What if i attempt to charge 10% interest to private banks for borrowing from our central bank and they refuse on the grounds of overpricing?
I’ve been thinking about this some more and think we’ve all been confused.
The interest rate my central bank charges is not set through the purchase of government bonds, although the market value of the currency is linked to the change in the money supply this causes.
But the actual Interest rates are just an arbitory numbers - I can set to anything I like!
http://en.wikipedia.org/wiki/List_of_countries_by_central_bank_interest_rates
But what I don’t understand is why I would want to charge an interest rate in the first place.
I want to lend money to ensure liquidity not make a profit, im now more confused than ever.
I’m so going to get fired…
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You admit ignorance, yet have an opinion on what the interest rate should be. If you are so admitedly ignorant, why do you presume to have an opinion? Why do you want to lower the interest rate if you cannot explain both the benefits and the disadvantages of doing so, as well as their relative importance?
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Let the interest rate be what it wants to be. Don’t interfere with it in any way.
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Tell all the banks you are not going to lend them any money, nor buy or sell them anything. You are closing up shop. They are on their own.
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Put the country on a gold standard.
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Get rid of all tarrifs, allow all imports.
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Yes, it is like I was saying to my friend the Crown Prince shortly before his tragically car accident last week for which sums of the 170 millions dollar I am writing now to request your support as you are a known person who is honest in these affairs. I said, “Crown Prince, you do not have the reality knowledge to handle reality-world moneying! Let me, your friend, transfer to a holding account in the America.”
Naturally, he agreed to such a thing, and I am now writing to you, who is wise after reading this preventative article, to request your bank account informations.
Good one, Dave, on all 5 points 
1.) Ignorance and certainly ignorance awareness is not subjugator of opinion.. I’ve never had cancer but I still hold a faily strong negative opinion about having it.
2.) Interest rates appear a popular tool for controlling monetary policy, I am trying to better understand how they actually work in 99% of the worlds economies.
3.) We must lend to the banks otherwise they will have no currency to lend to smaller private investors. It is a liquidity service I seek to provide.
I’m no expert, but I’m just amazed at this. What do you think is the point of opening savings accounts with banks?
1.) Ignorance and certainly ignorance awareness is not subjugator of opinion.. I’ve never had cancer but I still hold a faily strong negative opinion about having it.
That’s because you know enough about cancer to know it is bad.
But you don’t know enough about economics to know that 10% is a good interest rate. Proof: Why do you think 10% is good? Whatever answer you give is mistaken, as you would know if you read up on AE.
2.) Interest rates appear a popular tool for controlling monetary policy, I am trying to better understand how they actually work in 99% of the worlds economies.
Popular and good are not the same thing. Is Justin Beiber good, do you think? Is his economic advice worth taking?
The way they actually work is that the govts print so much money that interest rates fall. The effect is inflation. That’s how they work.
3.) We must lend to the banks otherwise they will have no currency to lend to smaller private investors. It is a liquidity service I seek to provide.
What happened to all the currency they had until now? Did it burn up in somebody’s furnace?
Why do you think it is the job of a govt to provide a liquidity service? What expertise does it have to ensure it gets paid back?
Or are we talking about outright gifts to the banks, using money taken away from everyone else? What kind of liquidity is that? It’s like pouring water from one glass into another and saying you have more water.
Let me clarity the situation a little the government of I which I am member only recently came to power in bloodless coup - it is for this reason I got my new job.
We have decided to start afresh with a new currency, that will be issued directly from the central bank. Although we did consider using private currencies like Paypal or Bitcoin, offical national currency is considered more secure and trusted than relying on private currencies primarily due to our powers of lethal force to protect it.
We must then ensure our banks can obtain access to the new currency, but if we lend without an interest rates our ability to control monitory policy is restricted and after the effects of inflation would mean the real value of returned funds was negative.
So im going to charge all banks 9% if they want to borrow.
Why not gold?
I have just taken over as economics Minster for a small unknown failed European state and to be honest im out of my depth…
Gideon? Is that you?
Well if banks are willing to pay me 9% in return for a loan of paper money.. why the hell would I want to get all dirty down a gold mine?
Plus I can always reduce the repayment costs by printing more money - is this a serious question?