Can the Governance of Central Banks’ Prevent the Emergence of Capital Market Crises?
Dr. Mohamed Ibrahim Elshafie
Associate Professor – Head of Department of Public Law – University of Sharjah, UAE
Abstract:
The central bank undertakes an important role in maintaining financial stability, which may require it to step in and either sell or purchase securities on the stock market. Due to the recent economic and financial developments, the central bank has become one of the largest investors in the stock market. Consequently, such new actions potentially create a contradiction between the role of the central bank in maintaining financial stability and its desire, as an investor, to maximize its returns, which could ultimately lead to disruptions in the stock market.
This research aims to shed light on the nature and foundations of central banks’ governance. It also identifies the most important factors that may determine the nature and framework of central banks’ governance amongst different countries. There are worries that central banks may be over-extending themselves by operating in too many areas, and this may threaten financial stability. Consequently, the central banks’ governance offers a potentially solid guarantee to limit the volatility of the stock market.
In light of the above, this research seeks to reveal the extent to which central banks’ governance could contribute to the avoidance of financial crises. This research is divided into three sections: the first section discusses the concept and rules of governance of central banks. The second section addresses the role of central banks’ governance in preventing and mitigating stock market crises. Finally, the third section focuses on the central banks’ governance in the states of the Gulf Cooperation Council (GCC).