In this guide, you will find all the information you need to know about Monetary Policy And Central Banking in your country and the influence it has on the cashflow position of your business.
Indeed, money policy by the central bank impacts on your business whether your are small or big business.
As a result, in this guide, you are going to realize what monetary policies are, and how they can impact on your business’ cashflow.
First of all, what is a monetary policy? Certainly, you will find the answer to that question right below.
The Meaning Of Monetary Policy
As a matter of facts, monetary policies are arrangements put in place by the central bank of a state or country to regulate money supply in the economy of that state or country.
From the definition above, you will realize the following facts:
- First, only central banks administers the Monetary policies of a state . This means, that commercial banks and universal banks cannot rollout monetary policy.
- Secondly, the purpose of a monetary policy is to regulate the amount of money that is in circulation. Thus, the policy makes sure that we do not have excess money in circulation or shortage of money in circulation.
- Lastly, the central bank in a country or a central bank of a state within a country administers the monetary policy. For example we have the Bank of England and the Central bank of New York.
Now, let’s consider the tools that the central bank use to regulate money supply in an economy right below.
The 6 Tools Of Monetary Policy Used By Central Banks
Now, what tools does the central bank uses to regulate money supply in an economy?
Certainly, the following are the means the central bank regulates money supply in your state:
- Policy Rate
- Open Market Operation
- Minimum capital requirement
- Special deposit
- Moral Suasion
First of all click HERE to find the details of the various mechanisms the central bank uses to circulate money in your country.
At this time, let’s look at some material facts about what you just read.
Facts You Need To Know About Monetary Policy
- Monetary policy is different from fiscal policy. Now the we have already explained money policy above.
- The government implements Fiscal policy of a country to regulate government expenditure. Normally, it is the ministry of finance which administers fiscal policy on behalf of the government.
- From you reading above, you will realize that some of the tools are compulsion whiles others are only appeal. For example, Cash Ratio is a compulsion but moral suasion is an appeal.
I believe, you have all the information you need to know about monetary policy and central banking.
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