Major Limitations of Monetary Policy in less Developed Countries
Large Non-monetized Sector:
There is a large non-monetized sector which hinders the success of monetary policy in such countries
Undeveloped Money and Capital Markets:
The money and capital markets are undeveloped. These markets lack in bills, stocks and shares which limit the success of monetary policy.
High Liquidity:
The majority of commercial banks possess high liquidity so that they are not influenced by the credit policy of the central bank. This also makes monetary policy less effective.
Small Bank Money:
Monetary policy is also not successful in such countries because bank money comprises a small proportion of the total money supply in the country.
Money not deposited with Banks:
The well-to-do people do not deposit money with banks but use it in buying jewellery, gold, real estate, in speculation, in conspicuous consumption and many others. Such activities encourage inflationary pressures because they lie outside the control of the monetary authority.
steve williams answered the question on January 23, 2018 at 11:41
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