Explain the reasons for the need for a central bank?

Answer:

Reasons for the need for a central bank: -

In every country in the world, the central bank appears to have originated in the early 20th century. But before that, before the establishment of the central bank, were there no financial transactions in the country? If financial transactions are taking place then why there is a need to set up central banks. So that the central bank appears in every country today. It seems important to find out why. So here we will look at the reasons for setting up central banks. The reasons can be stated as follows.

1) Deciding monetary policy: -

The central bank has the main responsibility to make the fiscal policy announced by the central government a success. Accordingly, the central bank announces its own monetary policy. That policy is called monetary policy. Through this, the central bank uses quantitative and qualitative means to distribute the currency in the economy according to its need and quantity. It promotes economic growth. In short, the monetary policy helps keep the economy running smoothly Comes. Hence the need for a central bank to decide on such a monetary policy.

2) To streamline the banking system: -

The rate of economic growth of any nation depends on the banking system of that country. This is because banks act as blood vessels in the human body in this economy. Therefore, every nation has set up a central bank to strengthen, update and streamline the banking system of the country.

3) To develop coin market and capital market: -

During financial development, a large amount of loan is required. The coin market and the capital market need to be developed for the short-term and long-term recovery of such loans. This is because it is easy to raise loans from the coin market for the short term and from the capital market for the long term. Therefore, there was a need for a central bank to set up and develop the coin and capital markets in the country and to meet the demand for credit in the economy. Thus the Central Bank was established.

4) Control over Banks: -

Commercial banks in the country are established for the purpose of making a profit. There are also many privately owned banks. They take unwanted steps to their advantage, they have lifelong competition, and they lend to a specific sector. In order to achieve balanced development of the entire economy by avoiding the adverse effects on the entire economy due to such reasons, it became necessary to have some control over such a bank. From there, the government set up a central bank to control the bank.

5) To supply loans to various sectors: -

For the sake of security and to make extra profit, commercial banks provide loans only to the rich people in the economy, to specific sectors only. This creates an imbalance in the economy and creates a gap between the developed and the underdeveloped, the poor and the rich. Therefore, there are many obstacles to development, and development is hampered. Therefore, the economy needs to be able to supply credit to all sectors as required. For this, by establishing a central bank, easy control over the functioning of the bank

Economic growth can be achieved by providing easy loans to various sectors.

6) To control the currency

All financial transactions in the economy Are carried out with the help of currency. But the current system cannot see its own arrangement. The gold standard was also ineffective during World War II. Therefore, there was a need for an almighty institution to control the currency of the country. In order to maintain the confidence of the people in the currency, a central government-owned body was set up to conduct financial transactions smoothly.

7) To control prices

Inflation and extreme inflation in the economy are fatal to the economic development of the country. Therefore, there needs to be proper coordination between the amount of money, the value of money, and the price level of the commodity. The central bank has also been set up to control the effects of price rises and falls.

8) To control credit money

Money generated by commercial banks is called credit money. Commercial banks generate large sums of money in the pursuit of profit. They make a lot of money out of it. This leads to serious problems like inflation. Therefore, a central bank has been set up to control the credit of such commercial banks. The central bank controls the credit of the merchant bank with the help of the banker.

For many of the above reasons, there was a need for a central bank. So every country in the world has set up one of the highest central banks in their country.

What is fall control?

Answer:

Debt control

Debt control is simply defined as the combination of credit money generated by commercial banks in the economy with the overall transaction. In short, controlling the flow of money generated by commercial banks is a way to reduce it. "

Credit Control of Central Bank

Overall, all the functions are considered important. But the functions of the central bank are considered to be more important than any other. Fall control is more important than any other function of the central bank.

There are generally two types of money in the economy. An intermediate Money generated by a bank is called legal tender money. Money generated by other commercial banks. It is called 'Patpaisa'. The law empowers commercial banks to generate credit. So commercial banks generate many times more cash than they have. The creation of such credit money caters to the needs of various sectors of the economy and promotes growth. This creates a boom in the economy. Generating more credit than necessary creates problems like inflation and adversely affects the economy. On the other hand, if commercial banks reduce credit formation, the economy will be in a recession due to a lack of money supply. This leads to a decrease in the price level.

It also has adverse effects on the economy. In short, excessive credit formation by commercial banks creates problems like inflation, while low credit creation creates a downturn. Both have adverse effects on the economy and economic growth. The law empowers the country's central bank to minimize such adverse effects and to determine how much credit the commercial bank should generate.

That right is called the right to 'fall control'. The central bank's various tools for controlling the decline of the economy create a favorable environment for economic growth by slowing down the cycle of ups and downs in the economy. In short, what the central bank controls over the merchant bank's finances is called the central bank's fall control function. The means by which such control is maintained are called central bank fall control tools. The policies, strategies, and transactions that the central bank devises to control this are known by different names such as monetary policy, monetary policy, and monetary policy of the central bank.