Sunday, February 15, 2009

Role of Central Bank in Economic Development

The economic stability of a country is solely dependent on the central bank. It is the only financial institution in the country which is responsible for regulating the banking and monetary system of the country. The need of central bank in a country is essentially felt considering the following services rendered by a central bank for economic development of a developing country.

1. Capital Formation: Economic progress of a country requires adequate amount of capital. Capital is required for agriculture, industrial and commercial development. But in a developing country, it is a chronic problem to procure capital. Central bank as a national institution plays prime role in capital formation in the interest of the nation as a whole. As the guardian of the money market, it regulates the capital flow in the country in proper form and suitable time.

2. Credit Control: Credit is one of the most important source of financing trade and industry. The central bank as the controller of credit can encourage a particular sector of economy by adopting selective credit control.

3. Stability in Prices: The central bank keeps the price level stable in the country by controlling money and credit supply.

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