The main responsibility of a central bank under floating rates is to stabilize domestic price levels, thereby enabling the maintenance of the internal value of money. Many countries in the past expected their respective central banks to pursue various different objectives but this view proved erroneous as longer-term price stability was sacrificed in favor of short-term goals.
When a central bank is allowed to perform this responsibility, inflation rates goes down as shown by the experience during the 80’s and the 90’s. The adoption of rules and procedure to control money growth by adjusting interest rates to respond both to inflation and deviations in output proved a wise move to many.
