2. • Central Bank:
• A central bank is a bank which constitute the apex of the monetary and
banking structure of its country and which performs best it can in the
national economic interest.
• Objectives of the central bank:
1. Maintain internal value of currency
2. Promote financial institution.
3. Preserve the external value of money
4. Ensure price stability
5. Promote economic growth.
3. • Functions of Central Bank:
Monopoly of note issue
Custodian of exchange reserve
Banker to the govt.
Banker to the commercial bank
Controller of credit
Promoter of economic growth.
4. Roles of Central Bank in the Economy and
Financial System:
Control the money supply to avoid severe inflation.
Stabilizing the money and capital market.
Lender of last resort and supervision of the banking
system
Maintaining and improving the payment mechanism.
5. • Five major forms of economic policy
1. Monetary policy is concerned with the actions taken by central banks
to influence the availability and cost of money and credit by controlling
some measure (or measures) of the money supply and/or the level and
structure of interest rates.
2. Fiscal policy relates to changes in the level and structure of government
spending and taxation designed to influence the economy
3. Exchange rate policy involves the targeting of a particular value of a
country’s currency exchange rate thereby influencing the flows within
the balance of payments.
6. 4. A prices and incomes policy is intended to influence the inflation rate
by means of either statutory or voluntary restrictions upon increases in
wages, dividends and/or prices.
5. National debt management policy is concerned with the manipulation
of the outstanding stock of government debt instruments held by the
domestic private sector with the objective of influencing the level and
structure of interest rates and/or the availability of reserve assets to the
banking system.
7. Purpose of Monetary Policy:
Stability in the price level
High employment
Economic growth
Stability in foreign currency exchange rate
Stable interest rate
8. Credit Control System:
1. General credit control
Open market operation
Reserve requirements
Discount rate/ Bank Rate
2. Selective credit control
Moral suasion
Margin requirements