ECO 306: Final Project II

Southern New Hampshire University

Sarai Sternzis
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Final Project 2

Introduction – The Central Bank of Ireland

The Republic of Ireland is an independent island located in the North Atlantic. Ireland’s main

bank, The Central Bank of Ireland, was established in 1943 with a mission of primarily serving

its public interest by following proper and transparent financial guidelines that are in the best

interest of its nation.

In its earlier years of operation, the Central Bank of Ireland was responsible for a number

of particular functions such as safeguarding the integrity of the local currency and controlling

credit while protecting the nation from negligent performance. Although some common

characteristics of a central bank weren’t assigned to the Central Bank of Ireland at the time of

establishment, its scope of responsibilities slowly increased along the years with a most

significant transition to a fully functional central bank followed by the Central Bank Act of 1971.

Operating as an independent entity that reports to the government, the Central Bank of

Ireland has a Board of Directors and eight members. The president of Ireland appoints the

governor of the Central Bank. In addition to holding all cash and balances for the government of

Ireland as its banker, the Central Bank also carries all remittances and engages in additional

financial operations for it such as providing short-term loans. Further financial activities of the

Central Bank of Ireland include ensuring price and financial stability, consumer and economy

protection, and settling currency systems and oversight. In resemblance to the Central Bank of

Ireland, the Federal Reserve is also an independent entity that serves as the main baking in

system in the U.S. Many of its functions are similar to those of the Central Bank of Ireland; it is

responsible to ensure stability in the financial system while protecting consumers and the

economy as a whole. Although it is being overseen by the government, the Federal Reserve has

monetary autonomy.
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Financial intermediation refers to the process in which funds are taken from a depositor

and are being lend to a borrower. Such transactions are a main source of income for banks as

these allow them to lend money at a high interest rate while still receiving deposits funds at

lower rates. The actions of financial intermediaries create efficient markets while lowering the

cost of operating a business, resulting in an overall economic stability. Serving as the main bank

for many of Ireland’s banks, the Central Bank is involved in an abundance of financial

transactions around the country. It provides loans and accepts deposits, as well as serves as a

“last resort lender” in a scenario of a collapse of a bank and allows for borrowers to better absorb

economic upsets.

Central Banking – Macroeconomic Conditions

To further compare and contrast the operations of the Central Bank of Ireland and the Federal

Reserve, an overview of the current macroeconomic conditions in each country will be presented

and analyzed below.

As of in other countries around the world, the global COVID-19 pandemic has had

immense impacts over the macroeconomic states of Ireland and the United States. In April 2020,

the unemployment rate in the U.S has skyrocketed to 14.7%., to currently hovering over around

8%- 6 months later. Although the rate is steadily stabilizing since the peak of pandemic, there is

still over a 4% increase than the same time last year. The Federal Reserve took several measures

to lower the severe impacts on the U.S Economy. It has lowered the effective rate to extremely

low rates, what has made it easier to obtain loans, resulting in a boost for the economy.

In contrast to the U.S, the jobless rate in Ireland amid the Coronavirus has not changed

dramatically at all. In the beginning of 2020 and prior to the pandemic, the rate was at about

4.6%, and it reached a high of 5.4% in July 2020. Ireland provides Jobless Benefits to its
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residences that are similar to Unemployment benefits of the United States (cash payments during

unemployment which are mainly based upon income.) To lessen the economic damages caused

by the virus, the Central Bank of Ireland has taken several actions to support the country: It

lowered the minimum amount of capital banks have to hold, so lending is easier; It is working

closely with its European partners on policies to strengthen the overall euro economy; and it has

partnered with lenders to ensure they apply payment breaks to borrowers.

Another important economic measure used for comparison is GDP or Gross Domestic

Product, which refers to the total value of goods produced and services provided. A high GDP is

favorable as it suggests economic strength.

Over the past few years, the GDP in the United States has been gradually increasing by 2-

3% each quarter. The year of 2020 brought a big hit upon the U.S economy- starting with a

decrease in GDP in the first quarter of about 5%, to a tremendous drop in Q2 of nearly 40%.

The GDP in Ireland is much less volatile than the U.S’ during the coronavirus. This could

be due to Ireland having less exports on the regular as part of its GDP. Its normal quarterly GDP

growth rate is between 2-5%. The drop in Ireland’s GDP in first quarter of 2020 was as low as

1.5%.

In reviewing the macroeconomic conditions in both Ireland and the United States, there is

certainly some similarity in the activities and functions of its two main banks. With that said,

Ireland and the Central Bank of Ireland has shown greater resiliency and financial stability than

the U.S’ amid the Coronavirus pandemic, demonstrating less significant impacts on its economy

as a whole.
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Monetary Policies – Primary Tools, Impacts and Regulations

Monetary policies are macroeconomic policies regulated with the goal of directing the cost and

availability of money, controlling interest rates, and promoting national economic goals.

The U.S have three primary tools to control its money supply; Open Market Operations,

Discount Rate and Reserve Requirements. To reach a short-term objective for the country’s

money supply, the Federal Reserve engages in open market operations in which it sells and buys

securities. As the Fed sells more securities, the money supply in the U.S decreases. Conversely,

as it engages in purchasing securities- money supply increases. The second tool that is used to

influence the circulation of money, and more specifically, lenders and borrowers- is the discount

rate. As rates are lowered, borrowing becomes easier and more loans are obtained. A higher rate

will slow down the economy as loans are more costly to obtain. The reserve requirements

implemented by the Federal Reserve provide regulations to banks on the amount of money they

should hold at each day after all deposits and withdrawals have been conducted.

Similarly to the Federal Reserve, the Central Bank of Ireland uses monetary policies to

achieve price stability and impact its macroeconomic performance. It reports directly to the

Governor of Ireland about the state of the Euro in relations to the international economic

environment. It forecasts the inflation rate, assesses monetary and financial sectors in Ireland,

analyzes public finances, identifies and provides solutions to labor market related issues, and

tracks the development of banks around the country. The primary tools the Central Bank uses to

control the money supply using monetary policies are open market operations, main refinancing

and long-term refinancing, and fine-tuning operations. Main refinancing operations (MRO) are

reserve transactions that typically last one week and influence short-term liquidity. Long-term
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operations (LTRO) serve a similar function although have a long maturity of three months. Fine-

turning operations aim to minimize impacts to interest rates caused by unexcepted liquidity

fluctuations. These may be executed on an ad hoc basis to increase market liquidity and control

interest rates. Fine-tuning operations are primarily executed as reserve transactions, foreign

exchange transactions and by a collection of fixed-term deposits. Another tool used by the

Central Bank of Ireland to control the money supply in the country is Standing Facilities, in

which it aims to absorb overnight liquidity by allowing counterparties to deposit funds with the

Eurosystem.

Both the Central Bank of Ireland and the Federal Reserve have various regulations in

which they operate and adhere to. The U.S Federal Reserve have hundreds of banking

regulations. Among its primary guidelines and procedures are: Equal Credit Opportunity that

prohibits lenders from discriminating against borrowers; it sets uniform requirements for all

depository institution in regard to their reserve requirements; it provides extensions of credit by

securities brokers and dealers; establish the rights , liabilities and requirements for electronic

funds transfers; it sets stock-subscription requirements for the capital stock; it governs

international banking relations and operations; prescribes unform methods for truth in lending

and guidelines in term disclosure; prohibits unfair or deceit acts of practices, and more. Please

refer to the federal reserve website to find the complete list of regulations

https://www.federalreserve.gov/bankinforeg/reglisting.htm

The Central Bank of Ireland is regularly instructing its regulations in a manner that

protects the stability of the financial system, ensures that consumers of financial services are

protected, and oversees credit institutions in the country. Among its various banking regulations

are: Making information returns on the operations of the Market Operator; It requires the
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availability of senior management to be available upon request to meet and discuss regulatory

issues; It instructs the Code of Conduct for mortgage lenders; and facilities access to credit for

sustainable and productive business propositions while promoting fairness and transparency in

the treatment of small and medium enterprises; And sets requirements for the Market Operator to

submit monthly financial statements ad annual audited financial statements.

Conclusion

The Federal Reserve and the Central Bank of Ireland share various goals and characteristics such

as ensuring price stability, overseeing its country’s economy and taking actions to adjust it based

on needs, and protecting businesses and individuals by reacting to market fluctuations. The two

banks implement monetary policies and engage in open market operations to adjust the cost and

availability of funds while ensuring a healthy circulation of money throughout the country.

In reviewing the Federal Reserve’s list of regulations, it is clear that The Fed’s intent is to

provide the public with an extensive and clear in-depth overview for its operations, goals, and

actions. There is no room for mistakes as each law and regulation is explicitly detailed and can

be easily accessed by anyone. In comparison, the Central Bank of Ireland lacks such specified

definition of each one of its policies and could use a broader description that is available to the

public. In handling the economic impacts of the Coronavirus, it seems as if the Central Bank of

Ireland managed to lessen the impacts over its country in an exceptional manner. Unlike the U.S,

Ireland’s market is much less volatile, and its macroeconomic performance has only been

slightly impacted by the pandemic. The resiliency of the Central Bank of Ireland can be of

example to the Federal Reserve in the way it supports its residents during times of needs.
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References

BEA. (2020). News Release. Retrieved September 27, 2020, from

https://www.bea.gov/news/2020/gross-domestic-product-1st-quarter-2020-second-

estimate-corporate-profits-1st-quarter

Central Bank of Ireland. (2020). Central bank of Ireland. Retrieved October 3, 2020, from

https://www.centralbank.ie/about/freedom-of-information/freedom-of-information-

publication-scheme/information-about-the-central-bank-of-ireland

FRB All Regulations. Retrieved October 3, 2020, from

https://www.federalreserve.gov/bankinforeg/reglisting.htm

Federal Reserve. (2020). Structure of The Federal Reserve System. Retrieved October 3, 2020,

from https://www.federalreserve.gov/aboutthefed/structure-federal-reserve-system.htm

Trading Economics. (2020). Ireland GDP Growth Rate1995-2020 Data: 2021-2022 Forecast:

Calendar: Historical. Retrieved October 3, 2020, from

https://tradingeconomics.com/ireland/gdp-growth