History and scope

of central banking
 Definition
BANKS AS ACCEPTING FOR THE PURPOSE OF LENDING OR INVESTMENT OF
DEPOSITS OF MONEY FROME THE PUBLIC REPAYABLE ON DEMAND OR
OTHERWISE AND WITHDRAWAL BY CHEQUE DRAFT AND ORDER .THE
COMBINATION OF THE FUNCTION OF ACCEPTANCE OF PUBLIC DEPOSITS
AND WITHDRAWAL OF THE MONEY BY CHEQUES BY ANY INSTITUTION
CANNOT BE PERFORMED WITHOUT THE APPROVAL OF RESERVE BANKS
FUNCTIONS OF R.B.I

1.issue of currency notes

2. bankers to bank
3. banker to the government
4. foreign exchange rate management
5. credit control function
6 .lender of the last resort
7. monetary policy
Macroeconomic policy
 MONETARY POLICY
Monetary policy is concern with money supply, credit creation by banks and rate of interest. It is
formulated and implemented by the central bank. In India, for e.g. the reserve bank of India is mainly
responsible for implementing the monetary policy. Till the great depression of 1930’s , this policy mainly
used to ensure economic stability. By controlling money supply and credit creation, stability was ensured
economy. However, during the 1930’s monetary policy was not effective in bringing about a recovery. It
lost its predominant position to fiscal policy. At present a combination of fiscal and monetary policies is
used to achieve the objectives of macroeconomic policy Monetary policy is pursued by modern
governments to achieve certain specific objectives. The objectives differ from country to country and from
time to time. It depends upon the stage of development and the economic situation in the economy during
a particular period of time

 FISCAL POLICY
Fiscal policy is a powerful instrument in the hands of the government to achieve a number of socio-
economic objective. Through fiscal policy the government can influence production, distribution,
consumption and resource allocation. Fiscal policy is formulation and implemented by the government to
achieve certain pre- defeminized objectives. Fiscal policy is concerned with public revenue, public
expenditure and public debt. The government mainly uses the budget policy to bring about desirable
changes in the economy. Through taxation, the government mobilizes resources to meet its ever increasing
expenditure.

OBJECTIVE OF MONETARY POLICY
 Monetary policy and economic growth:
 Economic growth refers to the increase in national income. to induce growth capital formation should
be high. monetary policy promotes capital formation by mobilizing resources and making it
available ton investors at right time and at rate of interest. the central banks adopt a flexible policy to
promote capital formation and growth. during inflation it adopts a dear money policy to control the
supply of credit and during depression it adopts a chap money policy.


 Monetary policy and price stability:

 Monetary policy aims at Controlling fluctuation in the price level as instability in the price level
produce adverse effect on the economy various measures are used by the central bank to control
inflation or deflation. while a mind inflation is better for the economy , a running or gallop…The
English traders that came to India in the 17th century could not make much use of the indigenous
bankers, owing to their ignorance of the language as well the inexperience indigenous people of the
European trade .Therefore, the English Agency 1.Houses in Calcutta and Bombay began to conduct
banking business, besides their commercial business, based on unlimited liability. The Europeans with
aptitude of commercial pursuit, who resigned from civil and military, organized these agency houses.
A type of business organization recognizable as managing agency took form in a period from 1834
to 1847.
 monetary policy and full employment
Banking structure
 Kinds of banks

 Commercial banks
Co-operative banks
Specialized banks
 Central banks
Quantitative system of credit control
includes following instruments:

 Bank Rate
 Open Market Operation (OMO)
 Change in Cash Reserve Ratio (CRR)
 Statutory Liquidity Ratio (SLR)
 Repo and Reverse repo rate
Thank you