The relationship between central bank policies and national currency value is a recurring theme in IELTS Writing Task 2. Based on analysis of past exam papers and expert predictions, this topic appears approximately twice per year, particularly in questions about economics and government policies. Understanding how to approach this subject is crucial for achieving a high band score.
how central bank policy impacts currency rates shows that monetary policy decisions significantly influence exchange rates and economic stability. Let’s examine a recent IELTS question on this topic.
Task Analysis
Some people believe that central banks should prioritize maintaining a strong national currency, while others argue they should focus on controlling inflation. Discuss both views and give your opinion.
This question requires:
- Discussion of two contrasting viewpoints
- Analysis of central bank priorities
- A clear personal stance
- Relevant examples and supporting evidence
Central bank policies affecting national currency strength and inflation rates
Band 8 Sample Essay
In the ongoing debate about central bank priorities, some advocate for maintaining currency strength while others emphasize inflation control. While both objectives merit consideration, I believe that managing inflation should take precedence as it has more direct implications for economic stability.
Those who support prioritizing currency strength argue that a robust national currency enhances international trade position and economic prestige. When a currency is strong, import costs decrease, benefiting domestic consumers and businesses that rely on foreign materials. For instance, government’s role in stabilizing currency has been crucial in countries like Singapore, where currency stability has contributed to its position as a global financial hub.
However, controlling inflation is arguably more fundamental to economic health. High inflation erodes purchasing power, destabilizes prices, and creates economic uncertainty that can trigger social unrest. how central banks respond to inflation demonstrates that effective inflation management protects savings, encourages investment, and maintains economic stability. The experience of Brazil in the 1990s, where hyperinflation devastated the economy until strict monetary policies were implemented, illustrates this principle.
In my view, while currency strength is important, inflation control should be the primary focus of central banks. Stable prices create a foundation for sustainable economic growth and naturally support currency value in the long term. Moreover, excessive focus on currency strength can lead to artificial market interventions that may have unintended negative consequences.
Band 6.5 Sample Essay
There are different opinions about what central banks should focus on more – having a strong currency or controlling inflation. I think both are important but controlling inflation is more important.
People who want a strong currency say it is good for the country’s image and trade. When the currency is strong, things from other countries become cheaper to buy. This helps companies that need to buy things from abroad. Also, a strong currency makes people feel proud of their country.
On the other hand, controlling inflation is very important because high inflation makes everything more expensive. When prices keep going up, people cannot buy as much with their money. This makes life difficult, especially for poor people. Many countries have had big problems because of high inflation.
I believe central banks should focus more on controlling inflation because this affects everyone’s daily life. While having a strong currency is good, keeping prices stable is more important for most people. When inflation is controlled well, the currency usually becomes stronger anyway.
Key Vocabulary
- Monetary policy (n.) /ˈmʌnɪtəri ˈpɒləsi/ – Actions of a central bank to control money supply
- Exchange rate (n.) /ɪksˈtʃeɪndʒ reɪt/ – Value of one currency in terms of another
- Hyperinflation (n.) /ˌhaɪpərɪnˈfleɪʃən/ – Extremely high and typically accelerating inflation
- Purchasing power (n.) /ˈpɜːtʃəsɪŋ ˈpaʊə/ – Ability of money to buy goods and services
- Economic stability (n.) /ˌekəˈnɒmɪk stəˈbɪləti/ – State of an economy with minimal fluctuations
Conclusion
The topic of central bank policies and currency value remains crucial in IELTS Writing Task 2. Practice writing essays on related topics like:
- The impact of digital currencies on traditional banking
- Role of international trade in currency fluctuations
- Government intervention in forex markets
Share your practice essays in the comments for feedback and improvement suggestions.
