Central Banking, Financial Stability and Macro-Prudential Policy

The theory and practice of central banking reflect a symbiotic relationship that has gradually evolved along with the financial system. An important milestone has been a heightened focus on financial stability and a greater appreciation of the importance of macro-prudential policy in central banking. This paper besides offering a historical perspective on the development of central banking with particular reference to developing economies provides a discussion about macro-prudential policies that strengthen financial stability by ensuring efficient allocation of economic resources, forward-looking risk pricing, and smooth absorption of financial and real shocks. Challenges emanating from the policy responses to contain the impact of the pandemic, debate around central bank digital currencies, and technological innovations are expected to shape the future of central banking in all jurisdictions