Q. 20

Discuss briefly t

Answer :

A central bank exercises the monetary policy to influence the rate of interest, money supply and credit availability. As a credit controller, the central bank uses a number of tools to maintain the liquidity of the commercial banks and regulate money supply.

The central bank as a credit controller is responsible for recovering any unpaid money that the commercial banks or other institutions owe to the central bank. The different methods it adopts for the process of credit control can be classified as quantitative or qualitative. Quantitative methods would involve using bank rates, open market operations and varying the cash reserve ratio. Qualitative methods would involve credit rationing, direct action, moral pervasion, publicity, regulation of consumer’s credit, regulating the marginal requirements on security loans.

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