Learning Material For Finals Monetary Policy and Central BankingFM4

Republic of the Philippines
Surigao del Sur State University

Rosario, Tandag City, Surigao del Sur 8300
Telefax No. 086-214-4221
Website: www.sdssu.edu.ph
MONETRAY POLICY AND CENTRAL BANKING
(FM 4)
FINALS LEARNING MATERIAL
Name of Student: ______________________________________
Subject: _______________________________________________
Year Level and Section: _________________________________
Subject Schedule: ______________________________________
E-mail Address: _________________________________________
Mobile Number: ________________________________________
DISCLAIMER
This module is a compilation of works from internet sources, manuals, and books from different
authors and this will be used for Educational purposes only. Due recognition is given to the authors
who are the source of some parts found in this module. The compiler / owner does not claim
copyrights to any part taken from other sources.
Dr. Floresito Dumagan Calub

Midterm Learning Material: Monetary Policy and Central Banking-FM4 Page 1
Department of Business Management and Governance
Telefax No. 086-214-4221
TOPIC I
TITLE: THE ROLE OF IMF IN CENTRAL BANKING
INTRODUCTION:
Chapter five will give the learners an overview of the Central Banking System
in the Philippine settings. The Bangko Sentral ng Pilipinas (BSP) is the central
bank of the Republic of the Philippines. It was established on 3 July 1993
pursuant to the provisions of the 1987 Philippine Constitution and the New
Central Bank Act of 1993. The BSP took over from the Central Bank of
Philippines, which was established on 3 January 1949, as the country’s central
monetary authority. The BSP enjoys fiscal and administrative autonomy from
the National Government in the pursuit of its mandated responsibilities.
This module covers the following aspects:

o Introduction to the International Monetary Fund
o What does IMF do? How does it work?
o IMF Benefits and Functions
o What IMF Does Practice
INTENDED LEARNING OUTCOMES
1. Elaborate discussion on the IMF works, functions, benefits, practices

special facilities and conditionality.
2. Adapt the central bank socio-economic development that responds
to the community’s demand for a quality of living.
3. Adapt and describes the roles and functions of the international
monetary fund in the business field.

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INSTRUCTIONAL MATERIALS
A. Lecture Notes
An Introduction to the International Monetary Fund

(IMF)
The International Monetary Fund (IMF) is an international

organization that provides financial assistance and advice to member
countries. This article will discuss the main functions of the organization,
which has become an enduring institution integral to the creation
of financial markets worldwide and to the growth of developing
countries.
The International Monetary Fund is a global organisation founded in 1944

in the post-war economic settlement which included the Bretton-Woods
system of managed exchange rates. J.M.Keynes and Harry Dexter White
both played an important role in its development.
Its primary aim is to help stabilise exchange rates and provide loans to
countries in need. Nearly all members of the United Nations are members
of the IMF with a few exceptions such as Cuba, Lichtenstein and
Andorra.
WHAT DOES IT DO?
The IMF was born at the end of World War II, out of the Bretton
Woods Conference in 1945. It was created out of a need to prevent
economic crises like the Great Depression. With its sister organization,
the World Bank, the IMF is the largest public lender of funds in the world.
It is a specialized agency of the United Nations and is run by its 186
member countries. Membership is open to any country that conducts
foreign policy and accepts the organization's statutes.
The IMF is responsible for the creation and maintenance of the

international monetary system, the system by which international
payments among countries take place. It thus strives to provide a
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systematic mechanism for foreign exchange transactions in order to

foster investment and promote balanced global economic trade.
To achieve these goals, the IMF focuses and advises on

the macroeconomic policies of a country, which affect its exchange
rate and its government's budget, money and credit management. The
IMF will also appraise a country's financial sector and its regulatory
policies, as well as structural policies within the macroeconomy that
relate to the labor market and employment. In addition, as a fund, it may
offer financial assistance to nations in need of correcting balance of
payments discrepancies. The IMF is thus entrusted with
nurturing economic growth and maintaining high levels of employment
within countries.
HOW DOES IT WORK?
The IMF gets its money from quota subscriptions paid by member states.
The size of each quota is determined by how much each government
can pay according to the size of its economy. The quota in turn
determines the weight each country has within the IMF - and hence
its voting rights - as well as how much financing it can receive from the
IMF.
Twenty-five percent of each country's quota is paid in the form of special

drawing rights (SDRs), which are a claim on the freely usable currencies
of IMF members. Before SDRs, the Bretton Woods system had been based
on a fixed exchange rate, and it was feared that there would not be
enough reserves to finance global economic growth. Therefore, in 1968,
the IMF created the SDRs, which are a kind of international reserve asset.
They were created to supplement the international reserves of the time,
which were gold and the U.S. dollar. The SDR is not a currency; it is a unit
of account by which member states can exchange with one another in
order to settle international accounts. The SDR can also be used in
exchange for other freely-traded currencies of IMF members. A country
may do this when it has a deficit and needs more foreign currency to
pay its international obligations.
The SDR's value lies in the fact that member states commit to honor their
obligations to use and accept SDRs. Each member country is assigned a
certain amount of SDRs based on how much the country contributes to
the Fund (which is based on the size of the country's economy).
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However, the need for SDRs lessened when major economies dropped
the fixed exchange rate and opted for floating rates instead. The IMF
does all of its accounting in SDRs, and commercial banks accept SDR
denominated accounts. The value of the SDR is adjusted daily against
a basket of currencies, which currently includes the U.S. dollar, the
Japanese yen, the euro, and the British pound.
The larger the country, the larger its contribution; thus the U.S. contributes
about 18% of total quotas while the Seychelles Islands contribute a
modest 0.004%. If called upon by the IMF, a country can pay the rest of
its quota in its local currency. The IMF may also borrow funds, if necessary,
under two separate agreements with member countries. In total, it has
SDR 212 billion (USD 290 billion) in quotas and SDR 34 billion (USD 46 billion)
available to borrow.
IMF BENEFITS
The IMF offers its assistance in the form of surveillance, which it conducts
on a yearly basis for individual countries, regions and the global
economy as a whole. However, a country may ask for financial
assistance if it finds itself in an economic crisis, whether caused by a
sudden shock to its economy or poor macroeconomic planning.
A financial crisis will result in severe devaluation of the country's currency
or a major depletion of the nation's foreign reserves. In return for the IMF's
help, a country is usually required to embark on an IMF-monitored
economic reform program, otherwise known as Structural Adjustment
Policies (SAPs).
There are three more widely implemented facilities by which the IMF can
lend its money. A stand-by agreement offers financing of a short-term
balance of payments, usually between 12 to 18 months. The extended
fund facility (EFF) is a medium-term arrangement by which countries can
borrow a certain amount of money, typically over a three- to four-year
period. The EFF aims to address structural problems within the
macroeconomy that are causing chronic balance of
payment inequities. The structural problems are addressed through

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financial and tax sector reform and the privatization of public enterprises.
The third main facility offered by the IMF is known as the poverty
reduction and growth facility (PRGF). As the name implies, it aims to
reduce poverty in the poorest of member countries while laying the
foundations for economic development. Loans are administered with
especially low interest rates.
The IMF also offers technical assistance to transitional economies in the

changeover from centrally planned to market run economies. The IMF
also offers emergency funds to collapsed economies, as it did for Korea
during the 1997 financial crisis in Asia. The funds were injected into
Korea's foreign reserves in order to boost the local currency, thereby
helping the country avoid a damaging devaluation. Emergency funds
can also be loaned to countries that have faced economic crisis as a
result of a natural disaster.
All facilities of the IMF aim to create sustainable development within a

country and try to create policies that will be accepted by the local
populations. However, the IMF is not an aid agency, so all loans are given
on the condition that the country implement the SAPs and make it a
priority to pay back what it has borrowed. Currently, all countries that are
under IMF programs are developing, transitional and emerging
market countries (countries that have faced financial crisis).
Source: https://www.investopedia.com/articles/03/030703.asp
FUNCTIONS OF IMF
1. International monetary cooperation.

2. Promote exchange rate stability.
3. To help deal with balance of payments adjustment
4. Help deal with economic crisis by providing international
coordination – loans, plus advice.
WHAT THE IMF DOES IN PRACTICE

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1. Economic surveillance and monitoring. IMF produces reports on

member countries economies and suggests areas of weakness / possible
danger (e.g. unbalanced economies with large current account
deficit/excess debt levels. The idea is to work on crisis prevention by
highlighting areas of economic imbalance. A list of IMF reports on
member countries are available at IMF Countries
2. Loans to countries with a financial crisis. The IMF has $300 billion of
loanable funds. This comes from member countries who deposit a
certain amount on joining. In times of financial/economic crisis, the IMF
may be willing to make available loans as part of a financial
readjustment.
 The IMF has arranged more than $180 billion in bailout
packages since 1997.
 In 1976, the IMF gave a loan to the UK as the Pound Sterling
was coming under pressure. The loan came with conditions
to reduce the budget deficit and raise interest rates to
defend the value of the Pound. See: IMF Loan to UK 1976.
 In 2010/11 the IMF played a major role in the bailout to the
Greek economy, which involved a total loan of up to $110
billion.
3. Conditional loans/structural adjustment. When giving loans, the IMF

usually insist on certain criteria being met. These can include policies to
reduce inflation (tightening of monetary policy)
 Reduce inflation (tightening of monetary policy)
 Deficit-reducing policies (higher tax)
 Supply-side policies, such as privatisation, deregulation and
improved tax collection.
 Removing price controls
 Free trade – removing tariff barriers
 Devaluation of currency to reduce current account deficit.
 See also: Washington Consensus
4. Technical assistance and economic training. The IMF produce many

reports and publications. They can also offer support for local
economies. More on technical assistance of IM
How is the IMF Financed?

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The IMF is financed by member countries who contribute funds on

joining. They can also increase this throughout their membership. The IMF
can also ask its member countries for more money. IMF financial
resources have risen from about $50 billion in 1950 to nearly $300 billion
last year, sourced from contributions from its 183 members.This initial
amount depends on the size of the countries economy. E.g. the US
deposited the largest amount with the IMF. The US currently has 16% of
voting rights at the IMF, a reflection of its quotas deposited with IMF. The
UK has 4% of IMF Voting rights. Loans at a discounted rate are also
available to developing countries to ‘deal with poverty reduction.’
SPECIAL DRAWING RIGHTS SDR
The IMF uses Special drawing rights to provide a unit for the amount of
foreign currency member states can draw on. SDRs are defined in terms
of a basket of major currencies including Euro, Pound Sterling, Japanese
yen and US Dollar.

Telefax No. 086-214-4221
TOPIC II
TITLE: CENTRAL BANKING DEVELOPMENT AND GROWTH
INTRODUCTION:
The central bank in a developing economy performs both traditional and non-
traditional functions. The principal traditional functions performed by it are the
monopoly of note issue, banker to the government, bankers’ bank, lender of
the last resort, controller of credit and maintaining stable exchange rate.
This module covers the following aspects:

o History of Bangko Sentral ng Pilipinas
o Overview of Functions and Operations
o Organization of the Bank
o Governance of the Bank
INTENDED LEARNING OUTCOMES
4. Discuss the current Philippine central banking system and the monetary
policy with the integration to the today’s economic situations
5. Elaborate the central banking development into the Philippine
experience to economic transformation.
6. Adapt and describes the roles and functions of the monetary board in
designing and implementing the monetary
policies and banking circulars.
INSTRUCTIONAL MATERIALS
B. Lecture Notes
ROLE OF CENTRAL BANK IN ECONOMIC DEVELOPMENT:
The central bank in a developing country aims at the promotion and

maintenance of a rising level of production, employment and real
income in the country. The central banks in the majority of
underdeveloped countries have been given wide powers to promote the
growth of such economies. They, therefore, perform the following functions
towards this end.

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Creation and Expansion of Financial Institutions:
One of the aims of a central bank in an underdeveloped country is to

improve its currency and credit system. More banks and financial institutions
are required to be set up to provide larger credit facilities and to divert
voluntary savings into productive channels. Financial institutions are localised
in big cities in underdeveloped countries and provide credit facilities to estates,
plantations, big industrial and commercial houses.
In order to remedy this, the central bank should extend branch banking
to rural areas to make credit available to peasants, small businessmen and
traders. In underdeveloped countries, the commercial banks provide only
short-term loans. Credit facilities in rural areas are mostly non-existent. The only
source is the village moneylender who charges exorbitant interest rates.
The hold of the village moneylender in rural areas can be slackened if

new institutional arrangements are made by the central bank in providing
short-term, medium term and long-term credit at lower interest rates to the
cultivators. A network of co-operative credit societies with apex banks
financed by the central bank can help solve the problem.
Similarly, it can help the establishment of lead banks and through them
regional rural banks for providing credit facilities to marginal farmers, landless
agricultural workers and other weaker sections. With the vast resources at its
command, the central bank can also help in establishing industrial banks and
financial corporations in order to finance large and small industries.
Proper Adjustment between Demand for and Supply of Money:
The central bank plays an important role in bringing about a proper

adjustment between demand for and supply of money. An imbalance
between the two is reflected in the price level. A shortage of money supply will
inhibit growth while an excess of it will lead to inflation. As the economy
develops, the demand for money is likely to go up due to gradual monetization
of the non-monetized sector and the increase in agricultural and industrial
production and prices.

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The demand for money for transactions and speculative motives will also
rise. So the increase in money supply will have to be more than proportionate
to the increase in the demand for money in order to avoid inflation. There is,
however, the likelihood of increased money supply being used for speculative
purposes, thereby inhibiting growth and causing inflation.
The central bank controls the uses of money and credit by an

appropriate monetary policy. Thus in an underdeveloped economy, the
central bank should control the supply of money in such a way that the price
level is prevented from rising without affecting investment and production
adversely.
A Suitable Interest Rate Policy:

In an underdeveloped country the interest rate structure stands at a very
high level. There are also vast disparities between long-term and short-term
interest rates and between interest rates in different sectors of the economy.
The existence of high interest rates acts as an obstacle to the growth of both
private and public investment, in an underdeveloped economy.
A low interest rate is, therefore, essential for encouraging private

investment in agriculture and industry. Since in underdeveloped country
businessmen have little savings out of undistributed profits, they have to borrow
from the banks or from the capital market for purposes of investment and they
would borrow only if the interest rate is low. A low interest rate policy is also
essential for encouraging public investment. A low interest rate policy is a
cheap money policy. It makes public borrowing cheap, keeps the cost of
servicing public debt low and thus helps in financing economic development.
In order to discourage the flow of resources into speculative borrowing

and investment, the central bank should follow a policy of discriminatory
interest rates, charging high rates for non-essential and unproductive loans
and low rates for productive loans. But this does not imply that savings are
interest-elastic in an underdeveloped economy.
Since the level of income is low in such economies, a high rate of interest
is not likely to raise the propensity to save. In the context of economic growth,
as the economy develops, a progressive rise in the price level is inevitable. The
value of money falls and the propensity to save declines further. Money
conditions become tight and there is a tendency for the rate of interest to rise
automatically. This would result in inflation. In such a situation any effort to
control inflation by raising the rate of interest would be disastrous. A stable price
level is, therefore, essential for the success of a low interest rate policy which
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can be maintained by following a judicious monetary policy by the central

bank.
Debt Management:
Debt management is one of the important functions of the central bank
in an underdeveloped country. It should aim at proper timing and issuing of
government bonds, stabilizing their prices and minimizing the cost of servicing
public debt. It is the central bank which undertakes the selling and buying of
government bonds and making timely changes in the structure and
composition of public debt.
In order to strengthen and stabilize the market for government bonds,

the policy of low interest rates is essential. For, a low rate of interest raises the
price of government bonds, thereby making them more attractive to the
public and giving an impetus to the public borrowing programmes of the
government. The maintenance of structure of low interest rates is also called
for minimizing the cost of servicing the national debt.
Further, it encourages funding of debt by private firms. However, the

success of debt management would depend upon the existence of well-
developed money and capital markets in which wide range of securities exist
both for short and long periods. It is the central bank which can help in the
development of these markets.
Credit Control:
Central Bank should also aim at controlling credit in order to influence
the patterns of investment and production in a developing economy. Its main
objective is to control inflationary pressures arising in the process of
development. This requires the use of both quantitative and qualitative
methods of credit control.
Open market operations are not successful in controlling inflation in

underdeveloped countries because the bill market is small and undeveloped.
Commercial banks keep an elastic cash-deposit ratio because the central
bank’s control over them is not complete. They are also reluctant to invest in
government securities due to their relatively low interest rates.
Moreover, instead of investing in government securities, they prefer to

keep their reserves in liquid form such as gold, foreign exchange and cash.
Commercial banks are also not in the habit of rediscounting or borrowing from
the central bank.

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The bank rate policy is also not so effective in controlling credit in LDCs
due to: (a) the lack of bills of discount; (b) the narrow size of the bill market; (c)
a large non-monetized sector where barter transactions take place; (d) the
existence of a large unorganized money market; (e) the existence of
indigenous banks which do not discount bills with the central banks; and (f) the
habit of commercial banks to keep large cash reserves.
The use of variable reserve ratio as method of credit control is more

effective than open market operations and bank rate policy in LDCs. Since the
market for securities is very small, open market operations are not successful.
But a rise or fall in the reserve ratio by the central bank reduces or increases
the cash available with the commercial banks without affecting adversely the
prices of securities.
Again, the commercial banks keep large cash reserves which cannot
be reduced by a raise in the bank rate or sale of securities by the central bank.
But raising the cash-reserve ratio reduces liquidity with the banks. However, the
use of variable reserve ratio has certain limitations in LDCs.
First, the non-banking financial intermediaries do not keep deposits with

the central bank so they are not affected by it. Second, banks which do not
maintain excess liquidity are not affected than those who maintain it.
The qualitative credit control measures are, however, more effective

than the quantitative measures in influencing the allocation of credit, and
thereby the pattern of investment. In underdeveloped countries, there is a
strong tendency to invest in gold, jewellery, inventories, real estate, etc.,
instead of in alternative productive channels available in agriculture, mining,
plantations and industry.
The selective credit controls are more appropriate for controlling and
limiting credit facilitates for such unproductive purposes. They are beneficial in
controlling speculative activities in food-grains and raw materials. They prove
more useful in controlling ‘sectional inflations’ in the economy.
They curtail the demand for imports by making it obligatory on importers

to deposit in advance an amount equal to the value of foreign currency. This
has also the effect of reducing the reserves of the banks in so far as their
deposits are transferred to the central banks in the process. The selective credit
control measures may take the form of changing the margin requirements
against certain types of collateral, the regulation of consumer credit and the
rationing of credit.

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Solving the Balance of Payments Problem:

The central bank should also aim at preventing and solving the balance
of payments problem in a developing economy. Such economies face serious
balance of payments difficulties to fulfil the targets of development plans. An
imbalance is created between imports and exports which continue to widen
with development.
The central bank manages and controls the foreign exchange of the
country and also acts as the technical adviser to the government on foreign
exchange policy. It is the function of the central bank to avoid fluctuations in
the foreign exchange rates and to maintain stability. It does so through
exchange controls and variations in the bank rate. For instance, if the value of
the national currency continues to fall, it may raise the bank rate and thus
encourage the inflow of foreign currencies.
Source: https://www.yourarticlelibrary.com/banking/the-role-of-central-bank-
in-a-developing-economy-of-a-country/11138
Sources:
1. "Monetary Policy". Retrieved May 19, 2011.

2. ^ Jump up to:a b c Bheda, Disha. "An Overview of Key Money Supply
Indicators - M0, M1, and M2". Data360. Retrieved May 18, 2011.
3. ^ Jump up to:a b c d "Monetary Policy - Glossary and Abbreviations". Bangko
Sentral ng Pilipinas. Retrieved May 18, 2011.
4. ^ "Other Money Supply Indicators". Data360. Retrieved May 18, 2011.
5. ^ "Money Supply- (27.06.04)". Retrieved May 19, 2011.
6. ^ Jump up to:a b c "Inflation Targeting: The BSP's Approach to Monetary
Policy". Retrieved May 19,2011.
7. ^ "Currency Swap Definition". Retrieved May 19, 2011.
8. ^ "FRB: Reserve Requirements". Archived from the original on 2010-02-19.
Retrieved May 19, 2011.
9. ^ "Republic Act No. 265: An Act Establishing the Central Bank of the
Philippines, Defining its Powers in the Administration of the Monetary and
Banking System, Amending the Pertinent Provisions of the Administrative
Code with Respect to the Currency and the Bureau of Banking, and for Other
Purposes". The Corpus Juris. The Corpus Juris. Retrieved 4 March 2016.

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1. Case Analysis Rubric
1. Introduction
a. Identify the key problems and

issues in the case study.
15%
b. Formulate and include a thesis
statement, summarizing the outcome
of your analysis in 1–2 sentences.
2. Background
a. Set the scene: background

information, relevant facts, and the
15%
most important issues.
b. Demonstrate that you have

researched the problems in this case
study.
3. Evaluation of the Case
a. Outline the various pieces of the

case study that you are focusing on.
20 %
b. Evaluate these pieces by
discussing what is working and what is
not working.
c. State why these parts of the

case study are or are not working well.
4. Proposed Solution/Changes

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a. Provide specific and realistic

solution(s) or changes needed.
b. Explain why this solution was

25%
chosen.
c. Support this solution with solid

evidence, such as:
i. Concepts from class (text

readings, discussions, lectures)
ii. Outside research
iii. Personal experience

(anecdotes)
5. Recommendations
a. Determine and discuss specific

strategies for accomplishing the
25%
proposed solution.
b. If applicable, recommend
further action to resolve some of the
issues.
TOTAL 100%
Source: https://usm.maine.edu/sites/default/files/assessment/Rubric-CaseAnalysis_0.pdf

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2. Oral Discussion Rubric
3. Activity Output Rubric

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https://www.gallaudet.edu/accreditation-certification-and-licensure/assessment/assessment-of-
student-learning/instructions-and-examples/developing-a-scoring-criteria-(rubrics)
4. Exercises
PROCEDURES/LESSON DEVELOPMENT
1. Communicate to the students the topics, learning objectives, activities and its
rubrics and the time allotted for this module.
2. Introduce the lecture notes to the students.

Run a small group discussion of the topics to ensure understanding of the topic.
-Stress the fact that the lecture notes are guide for further readings/research.
Ask the students to take note important concepts and its implication for oral
discussion with graphic organizer as assessment to ensure understanding of
the topic.
3. Introduce the rationale of case analysis, the format that has to be followed
and how the student’s output are to be rated.
-Highlight the applicability of this tool in solving business issues and concerns.
-Ask the students to critically analyze the case and relate any problem or
success in the actual setting as observed.
-Lead students into seeing the implications of putting into practice the
theories/concepts discussed through solving cases and integrating current
issues and trends that challenge businesses.
4. Give the chapter test to assess learning of the students.

Telefax No. 086-214-4221
EVALUATION/ASSESSMENT
The performance of the students will be assessed using the following:
1. Graded Oral Discussion
2. Exercises
3. Case analysis output
Thank you ….


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Republic of the Philippines

Surigao del Sur State University

MONETRAY POLICY AND CENTRAL BANKING

FINALS LEARNING MATERIAL

Name of Student: ______________________________________

Year Level and Section: _________________________________

Subject Schedule: ______________________________________

E-mail Address: _________________________________________

Mobile Number: ________________________________________

Dr. Floresito Dumagan Calub

TITLE: THE ROLE OF IMF IN CENTRAL BANKING

This module covers the following aspects:

INTENDED LEARNING OUTCOMES

1. Elaborate discussion on the IMF works, functions, benefits, practices

Dr. Floresito Dumagan Calub

An Introduction to the International Monetary Fund

The International Monetary Fund (IMF) is an international

The International Monetary Fund is a global organisation founded in 1944

WHAT DOES IT DO?

The IMF is responsible for the creation and maintenance of the

systematic mechanism for foreign exchange transactions in order to

To achieve these goals, the IMF focuses and advises on

HOW DOES IT WORK?

Twenty-five percent of each country's quota is paid in the form of special

Dr. Floresito Dumagan Calub

The IMF also offers technical assistance to transitional economies in the

All facilities of the IMF aim to create sustainable development within a

1. International monetary cooperation.

WHAT THE IMF DOES IN PRACTICE

Dr. Floresito Dumagan Calub

1. Economic surveillance and monitoring. IMF produces reports on

3. Conditional loans/structural adjustment. When giving loans, the IMF

4. Technical assistance and economic training. The IMF produce many

How is the IMF Financed?

Dr. Floresito Dumagan Calub

The IMF is financed by member countries who contribute funds on

SPECIAL DRAWING RIGHTS SDR

Dr. Floresito Dumagan Calub

TITLE: CENTRAL BANKING DEVELOPMENT AND GROWTH

This module covers the following aspects:

INTENDED LEARNING OUTCOMES

ROLE OF CENTRAL BANK IN ECONOMIC DEVELOPMENT:

The central bank in a developing country aims at the promotion and

Dr. Floresito Dumagan Calub

Creation and Expansion of Financial Institutions:

One of the aims of a central bank in an underdeveloped country is to

The hold of the village moneylender in rural areas can be slackened if

Proper Adjustment between Demand for and Supply of Money:

The central bank plays an important role in bringing about a proper

Dr. Floresito Dumagan Calub

The central bank controls the uses of money and credit by an

A Suitable Interest Rate Policy:

A low interest rate is, therefore, essential for encouraging private

In order to discourage the flow of resources into speculative borrowing

can be maintained by following a judicious monetary policy by the central

In order to strengthen and stabilize the market for government bonds,

Further, it encourages funding of debt by private firms. However, the

Open market operations are not successful in controlling inflation in

Moreover, instead of investing in government securities, they prefer to

Dr. Floresito Dumagan Calub

The use of variable reserve ratio as method of credit control is more

First, the non-banking financial intermediaries do not keep deposits with