[Tietäjä]

Originally Posted by Nodrog

Indirect taxation via inflation would be the most obvious.

Inflation tax is a minor "issue" which is broadly acknowledged, and could be battled with relatively easy methods if the government given was interested. A modern trend in Finland at least is consencutive tax cuts irregardless of economical development, so from this perspective inflation tax may not only be a problem either. Even if it was an issue, it would be a minor price to pay for a very functional system, instead of reverting to trade economy. (Unless, of course, we assumed it'd create a cycle in the form of the Baumol's cost disease, which it doesn't).

Originally Posted by Ultimate Newbie

Effectively, the "cash rate" is the rate at which the Reserve Bank lends money to all other financial institutions for overnight loans; its a huge huge sum of money and happens every day.

I may be confused behind a language barrier here. Does this Australian "cash rate" equal marginal lending facility (or main refining operations minimum bid rate)?

Originally Posted by Ultimate Newbie

Anyway, as i understand it, that cash rate is achieved through normal open market operations; if the rate is rising, the Reserve Bank "prints" money to bring the rate down to the (pre-established by the Board) level, else it "destroys" money if the rate is too low, thus bringing it up.

Erm. You actually destroy and print money to work out the interest rate? What's the point? That sounds awfully medieval. Does this mean, if you destroy money, there will be less money on supply hence the banks will bid higher, and vice versa? If so, why actual destruction or print of money would be required is beyond me (the CB could just store the cash, or if they'd want less cash on the market, they could just increase the amount of cash banks need to store, well, the cash reserve ratios, and vice versa. Actually printing and destroying money as means of monetary policy sounds very medieval to me).

Originally Posted by Ultimate Newbie

However, that's at the theoretical level, i would imagine that in the 'real world' the bank would effectively declare what the rate actually was and then everyone else would follow suit; the wonders of the expectations based economy that nodrog was refering to with regards to what money actually means these days.

Yeah, that's what they in Europe, declare the rates and lend money to the banks with the given rates. I don't think we here destroy money, though, and print only if it's actually needed. Generally, printing more money as a tool of monetary policy may just beat the cash reserves requirements, and result in inflatory development.

Originally Posted by Ultimate Newbie

Other things that the Reserve Bank does is advise on prudential issues (like having minimum reserves of hard currency) and the like.

Yeah. Minimum reserves of hard currency may also be used as a tool for controlling interest rates. The higher reserve requirements, the less banks can splash around.

I guess it's quite like with the European Central Bank in Australia too, just that I haven't heard that there'd actually be destruction and printing of money happening as tools of fiscal policies here. I reckon, if ECB doesn't include printing and destroying money as "normal open market operations", but if they feel the interests are going too high, they'll increase money supply by reducing the marginal lending facility, and vice versa.