Central bank policy and its impact on currency rates is a crucial topic in IELTS Writing Task 2, particularly for candidates from countries with dynamic economies. This subject has appeared in various forms in past IELTS exams and is likely to continue being relevant due to its global economic significance. To help you prepare, we’ll analyze a recent question and provide sample essays for different band scores.

Some people believe that a country’s central bank should focus primarily on controlling inflation, while others argue that managing currency exchange rates is more important. Discuss both views and give your own opinion.

Analysis of the Question

This question requires candidates to discuss two contrasting views on central bank priorities: inflation control versus exchange rate management. It’s essential to:

1. Explain both perspectives
2. Provide arguments for each view
3. Present your own opinion with justification

Now, let’s examine sample essays for different band scores.

Band 8-9 Sample Essay

Monetary policy decisions made by central banks have far-reaching consequences on national economies. While some advocate for a primary focus on inflation control, others argue that managing currency exchange rates should take precedence. This essay will explore both viewpoints before presenting my own stance on this complex issue.

Proponents of inflation control argue that stable prices are fundamental to economic health. By maintaining low and predictable inflation, central banks create an environment conducive to long-term planning and investment. This stability encourages consumer spending and business growth, ultimately leading to a robust economy. Moreover, controlled inflation protects the purchasing power of savings and fixed incomes, particularly benefiting retirees and low-income groups.

On the other hand, those who prioritize exchange rate management contend that a stable currency is crucial for international trade and investment. A volatile exchange rate can deter foreign investors and make import costs unpredictable, potentially harming businesses reliant on global supply chains. Furthermore, a well-managed exchange rate can boost export competitiveness, driving economic growth in export-oriented economies. This view is particularly prevalent in developing countries seeking to attract foreign capital and technology.

In my opinion, while both aspects are important, inflation control should be the primary focus of central banks. Stable prices provide a solid foundation for economic growth and financial stability, benefiting all sectors of society. Moreover, excessive focus on exchange rate management can lead to market distortions and reduced monetary policy effectiveness. That said, central banks should not entirely neglect exchange rates, as extreme volatility can indeed harm the economy.

In conclusion, central banks face a delicate balancing act between controlling inflation and managing exchange rates. While both objectives are significant, I believe that prioritizing inflation control offers the most comprehensive benefits for long-term economic stability and growth. However, a nuanced approach that considers both factors is essential for optimal monetary policy.

Band 6-7 Sample Essay

Central banks play a crucial role in managing a country’s economy. Some people think they should focus mainly on controlling inflation, while others believe managing exchange rates is more important. This essay will discuss both views and give my opinion.

Those who support focusing on inflation control argue that stable prices are very important for the economy. When inflation is low, people and businesses can plan better for the future. This can lead to more spending and investment, which helps the economy grow. Also, low inflation protects the value of people’s savings, which is especially important for older people and those with fixed incomes.

On the other hand, supporters of managing exchange rates say that a stable currency is necessary for international trade. If a country’s currency value changes a lot, it can make it hard for businesses to trade with other countries. A stable exchange rate can also attract foreign investment, which can help the economy grow. This view is common in countries that do a lot of international trade.

In my opinion, I think central banks should focus more on controlling inflation. While exchange rates are important, stable prices are more beneficial for the whole economy. Low inflation helps everyone in the country, not just businesses that trade internationally. However, I believe central banks should still pay some attention to exchange rates to avoid big problems.

To conclude, both inflation control and exchange rate management are important jobs for central banks. However, I believe that controlling inflation should be the main priority because it provides more benefits to the overall economy. Central banks should find a balance between these two goals for the best results.

Band 5-6 Sample Essay

Central banks are very important for a country’s economy. Some people think they should focus on controlling inflation, but others say managing exchange rates is more important. I will talk about both ideas and give my opinion.

Inflation control is important because it keeps prices stable. When prices don’t change much, people can buy things easily and save money. Businesses also like stable prices because they can plan better. This is good for the economy.

Managing exchange rates is also important. If a country’s money value changes a lot, it can be bad for trade. Companies might not want to do business with that country. Also, if the exchange rate is good, more foreign companies might invest in the country.

I think controlling inflation is more important. It helps everyone in the country, not just businesses. But I also think central banks should look at exchange rates sometimes. Both things are important for the economy.

In conclusion, central banks should think about both inflation and exchange rates. But I believe inflation control should be the main job because it helps more people. Central banks need to be careful and balance both things.

Inflation control versus exchange rate management

Explanation of Band Scores

Band 8-9 Essay:

• Fully addresses all parts of the task with a well-developed response
• Presents a clear position throughout the essay
• Uses a wide range of vocabulary with very natural and sophisticated control
• Uses a wide range of structures with full flexibility and accuracy
• Demonstrates coherent and logical organization with clear progression

Band 6-7 Essay:

• Addresses all parts of the task, though some aspects may be more fully covered than others
• Presents a relevant position, although conclusions may become unclear or repetitive
• Uses an adequate range of vocabulary with some errors in word choice
• Uses a mix of simple and complex sentence forms with some errors
• Shows clear overall progression, but may lack coherence in places

Band 5-6 Essay:

• Addresses the task only partially, with limited development of ideas
• Expresses a position but development is not always clear
• Uses a limited range of vocabulary, adequate for the task but with noticeable errors
• Uses only a limited range of structures with some accuracy
• Presents information with some organization but lacks overall progression

Key Vocabulary to Remember

1. Monetary policy (noun) – /ˈmʌnɪtəri ˈpɒləsi/ – Actions of a central bank to influence the money supply and interest rates
2. Inflation (noun) – /ɪnˈfleɪʃən/ – A general increase in prices and fall in the purchasing value of money
3. Exchange rate (noun) – /ɪksˈtʃeɪndʒ reɪt/ – The value of one currency for the purpose of conversion to another
4. Volatility (noun) – /ˌvɒləˈtɪlɪti/ – Tendency to change quickly and unpredictably
5. Competitiveness (noun) – /kəmˈpetɪtɪvnəs/ – Ability to be as good as or better than others of a comparable nature
6. Purchasing power (noun) – /ˈpɜːtʃəsɪŋ ˈpaʊə/ – The value of a currency expressed in terms of the amount of goods or services it can buy
7. Foreign investment (noun) – /ˈfɒrɪn ɪnˈvestmənt/ – Investment from one country into another
8. Supply chain (noun) – /səˈplaɪ tʃeɪn/ – The network between a company and its suppliers to produce and distribute a product

In conclusion, understanding the impact of central bank policies on currency rates is crucial for IELTS candidates, especially those from countries with emerging economies. Practice writing essays on this topic, considering various perspectives and using appropriate academic vocabulary. For further practice, try writing an essay on the potential impact of digital currency on national economies or explore how government bonds affect inflation rates. These related topics will help broaden your understanding of economic concepts frequently tested in IELTS Writing Task 2.

We encourage you to write your own essay on this topic and share it in the comments section below. This practice will help you improve your writing skills and prepare for the IELTS exam more effectively.