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    Abdullah Mujahid
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    central bank and monetary policy

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    37 views16 pages

    Central Bank and Monetary Policy

    Uploaded by

    Abdullah Mujahid
    central bank and monetary policy

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 16
    pankiig SCO ay 265 Centraj Bank Char NO.19 ‘Avter the World War 1 there was a : Breat depress ‘ omy. There were white spreag moni Pression and failure in the world |e itory and fj ems. In order to find out the Solution of al] Pd eae f oe i E "MS of the world a pence was held at Brussels in 1999, Was decided that to control the supply of each The first central bank in the world is Tt was declared as ‘ The idea of the central bank has been developed ea. In the past one bank gradually recognized as central bank in every | cuntry of Europe. At that time these banks were called national banks or bank of sie. The importance of central bank was felt after the First World War that led to Semonetary and financial crisis. In 1920 at Brussels Belgium a making was held and ‘was decided to set up a central bank in evel . Evel its own ‘aital bank at present time. “Kent says: That central bank is an institution, ‘managing the expansion and contract! ay, Merest of the general public welfare.” tk says, ft jonsibility is charged with the resp. ion of the volume of money in the ter nly in the i to is that it should act out ” is wit! The guiding principle of central pe country as a whole and Public interest for the welfare oO ieatio mn." nt "*9ard to profits as a primary consi Lf a, a 266 nae to the commercial banking " t acts as a banker to system ie a Lae ert as well. In the modern world usually 3 2a owned and operated institt 7 sole money issuing authority’ titution that control the banking system me isg W.A. Shaw says: "A central bank is a bank, which controls credit. PNET IPRINCIPLES/OBJECTIVES.OF C 1. Economic Stability: Central bank basically works and for for the fulfillment of If any sector of economy f, 2. National Interest: The basic object of central bank is not to earn the ‘best interest of the nation. Central bank always prefers national interest to all a: things. Besides it, central bank also th . 3. Effective Policy: Central bank implements effective policies to control the contctianob deed HE Cotinty, The central bank uses its powers to subdue commercial banks in order to enforce the devised policies. 4. Special Authorities: Central bank has special authorities to perform its ‘functions effectively ¢¢ tes, c. the central bank uses its authorities to strengthen the eo" ility. in| 5. Capital Formation: Fupausinr, Proje! Another objective of central bank is t0 increase capi country pacaloree Limitations: of eniral bank works according to the framed rules and regulatio™ Co government and its all dealings bes s ‘alings always remain within the said rules. 1 bank not only observes the constitutional limits but al a ganking & Finance 267 pavices to the Government: TOV ides fiscal agency services to the govern ment and gives 1 | bank Centra lems ree from Political Pressure: central bank does not accep noo t any ki Ce end y kind of i | while rendering its duties for the better interest of th Re ersbiconttely e country. Unfortunately, gpouP mi He central bank becomes an instrui ent of any subversive group then the country ace an irreparable loss. custodian of Banking System: Central bank is responsible for the protection a the central bank not only keeps anf 10. Exchange Stability: ‘Another objective of central ban! ll. Stability of Credit System: Central bank is 12. Public Welfare: Central bank works and construction of pr interest of the public. It performs its functions without for the public welfare. g, institution. It works in the best ‘ofit. It is not a profit makin; | banks are different from the functions of The t to earn the profit rather The functions of central ane s. The basic object of the central bank is not to € best interest a e nation. Central bank basically works for the |. Central bank trol credit of the country: ed almost by all the inplemer i ont nts effective policies t© fsa central bank of the The following functions are perlo} different countries of the world: a ae nee eee Functions of Central Bank » ¥ t Y : 7. Controller of 1. Monopoly 3. Banker's. 5. ieee Foreign exchange | | of note issue | | | Bank of foreign trade | | 8. Exchang, 2. Banker to the 4. Lender of 6. Controller te aeenge Government capital market of credit iy Methods of note ||i) Keeping of i) Custodian of cash i) Development of Capi, issue. Account reserve Market i. Fixed fiduciary |] ii) Fiscal Agent ii) Lender of last fii) Industrial and system iii) Foreign Loans resort Agricultural developmen iv) Transfer of capital |} iii) Clearing House iii) Membership fee ii. Proportion P : Reserve system ||¥) Govt. Securities |fiv) Advance Policy fJiv) Payment of interest ang 7 vi) Public Debt v) Opening of new foreign loan iti, Minimum Management Bank ¥) Growth to savin, Reserve System 7 ys vii) Financial Advisor |} vi) Growth of banks |] vi) Staff training >| vii) Financial Report Viii) Representation in international institut 1. Monopoly of Note Issue: In every country, central bank has sole right or monopoly of note issue. Thi authority has been given to central bank for: é 1) To regulate currency according to its demand, y~ 2) To check undue expansion of notes, 3) Uniformity in the notes; Vv 4) To make sure that notes issued iabi]i: ) support of state. are the liability of the bank and get Following are the three main methods of Note I, Issue: : ae row 4 1) Fixed fiduciary system ( wi0xt woot mot otic 1 Purl oy Correa beet 2) Proportion Reserve system, 3) Minimum Reserve System 7:0? bay oped awsore ee WlOD ay ys PE « (hy, 7 Peehiy » a ee ee | low owing functions: to the Government: pane coping of Accounts: i] } bank keeps e | central be eeps the deposits of the ce smments: It makes payments a ji of the central and provincial er terest on gO s on the behalf of government, However, t joes not PAY interest on government deposits, : i Fi cal Agent: cal agent the ‘a 7 Asa ee aes bank provides loans to the government and makes investments 1n reasury Bills and Long-term Government securities. w foreign Loans: Central bank makes arrangements to get foreign loans on the demand of government transfer of Capital: Central bank transfers the capital of central and provincial governments from one place to another. y Govt. Securities: ( Central bank is not only the custodian of government securities, but also works for their sale and purchase. yi) Public Debt Management: The central bank manages public debt and handles all financial business connected with it such as issue and repayment of loans and payment of interest or profit on, them when due vii) Financial Advisor: The central bank also advise’ the government on economic matter ch as controlling inflation OF eflation, dev aluation of revaluation of the currency and balance of payments etc. Banker's Bank: mmercial banks, the central bank performs the As a banker for the ¢° reserves & acertain ties with the central bank. ) Custodian of Cash Reserve? to keep qual to it liabili banks are requ d de The commercial sired by law mand depos! Percentage of both time an

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