Many economists have extensively investigated the relationship between finance and growth, and found that financial development has a strong, positive impact on economic growth (see Levine 1997 for a survey of the literature on the finance growth nexus). This raises an important question: does financial structure (that is, the degree to which the financial system of countries is intermediary or market based) matter for long-run economic growth? To address this question, economists and policy makers have concentrated on the relative merits of intermediary versus market based financial systems. The debate is more than a century old and it commenced with reference to Germany and the United Kingdom in the late nineteenth and early twentieth centuries. Gerschenkron (1962) and Goldsmith (1969) argue that the intermediary-based system in Germany permitted a closer relationship between intermediaries and firms than was possible in the market based system in the United Kingdom.
The debate eventually expanded to involve the United States as a prominent market based economy, and Japan as a dominant intermediary based system. In fact, a few years ago, it was asserted that Japan would surpass the United States as the world’s leading economic power because of its intermediary-based financial system (e.g., see Porter 1992). This claim stems from the fact that close relationships between intermediaries and firms can increase the availability of capital to borrowing firms, with positive ramifications for economic growth. Despite Japan’s recent economic problems, policy makers and economists throughout the world still examine the comparative advantages of intermediary versus market based financial systems (e.g., see Allen and Gale 2000, Levine 2000, and Demirguc Kunt and Levine 2001).
The resource sector has traditionally played an important role in the Canadian economy, especially in the area of foreign trade. Over the past decade, total exports of commodities represent, on average, about forty one per cent of Canada's exports of goods and fifteen per cent of Canada's gross domestic product (GDP).
Consequently, changes in world commodity prices have historically been a key determinant of Canada's terms of trade, which in turn have affected the real income of Canadians.
The monetary policy management in 2009 is done in a very troubled international environment marked by persistent uncertainties of the world economy due to the world financial situation in deep crisis since last year. On Rwanda side, the banking system has faced a liquidity crunch during the first half of 2009 with significant negative impact on economic activities.
In this Monetary Policy Statement a mid-term review of the implementation of the monetary and financial sector development program of year 2009 is done and some important measures to enhance the Rwandan financial sector stability will be presented. After a brief overview of the international and national economic environment in 2009, this document highlights a number of policy measures that have been taken by the Central Bank and the Government to address the problem of liquidity in the banking system. Finally, the document gives the main orientations of our Exchange and Monetary Policy for the remaining of the Year 2009, as well as the measures to be implemented towards enhancing the country financial stability.
