THE UNITED DEMOCRATIC REPUBLIC OF UTANIATHE RESERVE BANK OF UTANIA
It is the objective of the Reserve Bank of Utania to manage the currency, the Utanian pund, to manage the foreign reserves of Utania, to manage the inflow and outflow of investment funding and to raise funds for the Utanian federal government.
First and foremost, the Utanian Pund is minted and printed by the Reserve Bank. The pund was created after the collapse of the Guwimithian Empire, in conjunction with the UNVCOCN mission to Utania as the currency of the united Utanian nation in July 300ap. From March 299, when the Empire collapsed, until the introduction of the pund, the pund was slowly introduced to replace the old Guwimithian currency and the Zartanian Crown which took root in the former dependencies.
Utania operates on a fixed exchange rate, tied to the Christianan Crown at a 3:1 ratio, one Crown for three Utanian Pund. The fixed exchange rate then necessitates a managed flow of monies in and out of Utania, and this is also a role performed by the Reserve Bank.
If a Westrian wanted to buy Û10,000 worth of Utanian goods, they would have to pay with Utanian punds, therefore, they have to exchange their Zasters for Punds. While this would probably be done with a Westrian Bank, that bank would deal through the Reserve Bank of Utania, purchasing Utanian Punds in exchange for GBR Zasters. The Reserve Bank would calculate the exchange based on the Christianan Crown: if the Zaster:Crown exchange was 0.9950:1, then, since the Pund is worth one third of a Crown, the Westrian Bank would be required to pay Z3,350.08 for Û10,000. The Westrian business will then buy the Utanian goods with the Punds. Now, the Reserve Bank has three thousand-plus Zasters, which it will probably exchange with an Utanian business trying to buy from Westria at some stage.
The difficulty arises when there is a trade imbalance. If Utania exports more than it imports, then it will hold a large pool of foreign currencies, and the Utanian economy will have a large influx of Punds, which may result in high inflation. Conversely, if the country imports more than it exports, then the Reserve Bank will deplete its foreign reserves and the country may be forced to borrow overseas to finance that deficit. Furthermore, the Reserve will be taking Utanian punds out of the economy which will deplete the Money Supply and possible depress the economy.
The solutions to these undesirable circumstances are to either float the Utanian Pund allowing it to rise and fall according to demand, something the Utanian government has ruled out, or to manage the flow of money in and out of the economy. The Reserve Bank will strictly manage the broad trade balance, that is make sure that the:
For this reason all foreign currency transactions that involve the Utanian pund MUST involve the Reserve Bank of Utania. In addition, the commercial banks of Utania have all deposited monies into the Reserve Bank. Currently, the percentage of their deposits in the Reserve is 15.4%, though the Reserve is currently under government orders to release 1% of total deposits back into the economy by year's end.
An implicit role of the Reserve Bank is to evaluate and assist government with the development of economic policy, and to collate statistics that will assist with this. The Reserve Bank assisted the Census Bureau with the compilation of statistical information for the census, and will continue to collect such information.
Government Bond Management
The Utanian federal government needs to maintain a certain cashflow, that is a pool of money, lest it fail to pay wages for public servants, because the time difference between taxes being paid and necessary government expenditure is sometimes long. In addition, the government will need to raise funds to pay for long term projects, such as infrastructure and major expenditure projects.
Governments do this by issuing government bonds, which pay a certain guaranteed but usually low rates of interest. As they are low-risk, low-yield investments banks usually buy large numbers of bonds to help minimise the risk of their other investments. The Reserve Bank issues bonds for the Utanian government. The following table is the current list of bond issues from the reserve bank:
The above amount is equivalent to about 5% of the GDP, which has significantly slowed investment into development of the Utanian economy, however, it is believed that with this funding being mostly spent on development and infrastructure projects, the impact should be slightly eased. The low interest rate of the bond issue will also help to keep interest rates in Utania low, assisting business borrowing.
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Copyright © 2001 - Mike Ham
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