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ПОЛИТИКА, ЭКОНОМИКА И ИННОВАЦИИ № 4 (51), 2023 УДК 336.711: 336.77
Антхони Перераге Санул Ауешмантха Перера, студент международного медицинского института Курского государственного медицинского университета, Курск, Россия
Email: [email protected]
ЦЕНТРАЛЬНЫЙ БАНК КАК ОСНОВНОЙ ЭЛЕМЕНТ ДЕНЕЖНО-КРЕДИТНОЙ СИСТЕМЫ
Аннотация: в статье рассмотрена роль Центрального банка в регулировании денежного обращения страны.
Ключевые слова: Центральный банк, денежно-кредитная система
Anthony Pererage Sanul Ayeshmantha Perera, student of the International Medical Institute, Kursk State Medical University, Kursk, Russia.
Email: [email protected]
CENTRAL BANK AS THE MAIN ELEMENT OF THE MONETARY
SYSTEM
Abstract: the article examines the role of the Central Bank in regulating the monetary circulation of the country.
Key words: Central Bank, monetary system
In the Sri Lankan economic system, the overall responsibility and authority for monetary supply or monetary circulation have been given to the Central Bank of Sri Lanka (CBSL). The following section discusses the regulatory role of CBSL within the monetary system in Sri Lanka in terms of regulating monetary supply related aspects [1].
1. Conduct of Monetary Policy in Sri Lankan financial system
ПОЛИТИКА, ЭКОНОМИКА И ИННОВАЦИИ № 4 (51), 2023
There can be identified two major policies that utilizing by an economy in terms of regulating economic activities of a country or a financial and government body including monetary policy and fiscal policy. The monetary policy referred to as the procedure of managing the total supply as well as the cost of money within an economy of a country which mainly directed to accomplish the macroeconomic aim of stabilising the price stability. The main and overall responsibility of conducting and monitoring the monetary policy in Sri Lanka is dedicated to the Central Bank of Sri Lanka. The CBSL mainly governs the policy interest rates and deals with the liquidity in the economy in terms of conducting monetary policy. The Central Bank's monetary policy affects interest rates within the market, which in turn affects the lending and borrowing decisions of investors and households, economic output, and eventually the rate of inflation. As a result, the CBSL utilizes monetary policy to curb inflation and maintain it according to a predetermined pace in terms of maintaining the stability of prices within the economy. So-called monetary policy is put into effect via a variety of financial instruments, including modifying the quantity of money in circulation in the economy, buying or selling government assets and securities, and adjusting interest rates for lending and various types of deposits. These regulations were created by the CBSL.
In terms of conducting this monetary policy within the economy, the governors of CBSL have to change tools accordance with the economic conditions as well as with the overall aim of the economy and the government. In this case, there can be identified two types of monetary policy names as expansionary monetary policy and contractionary monetary policy. It is a responsibility of CBSL to implement and make changes of monetary tools accordance with the requirements.
If we distinguish and understand the two types of monetary policies, the goal of an expansionary monetary policy is to increase or grow the amount of money available inside an economy. In order to increase market liquidity, an expansionary monetary policy is undertaken by central banks through decreasing key interest rates of the financial system. Increased economic activity is typically encouraged by high market liquidity. Usually central a central bank tend to decrease interest rates including Repo,
ПОЛИТИКА, ЭКОНОМИКА И ИННОВАЦИИ № 4 (51), 2023 Reverse Repo, MSF, Bank Rate etc. on the other hand it may buys government securities from the in terms of providing liquidity for the market.
The other type of monetary policy is named as contractionary monetary policy. There are several types of contractionary monetary policy tools that can be used to affect an economy in order to decrease the money supply of the country. A contractionary monetary policy is characterized by an increase in key interest rates, sells government securities as well as enhance the rates of reserves, which contributes to the reduction of market liquidity (money supply) as a result. There is usually a negative impact on production and consumption when market liquidity is low. There may also be a negative impact on economic growth as a result of this situation [2].
2.Engage with Open Market Operations
The Central bank employs this as just another instrument to conduct either an expansionary or contractionary macroeconomic stimulus. The Bank's purchase or sale of securities out from market is referred to as "open market" activities. The Central bank sells instruments in the marketplace whenever it intends to implement a contractionary monetary policy, which means it seeks to lower the economy's overall demand by reducing circulation of money. At a fair market price, those securities represent secure investments. As a result, as consumers purchase the securities offered by the Central bank, they possess less cash within their possession. The economy's overall demand declines due to fewer money available.
The Central bank tend to buy instruments in the marketplace whenever it intends to implement an explanatory monetary policy, which means it seeks to boost the economy's overall demand. At a fair market price in an open market, those securities represent secure investments. As a result, the Central bank buys the securities from holders in the market and circulate money for the system though security holders, then they possess large amount of cash within their possession. The economy's overall demand would boost due to huge money available [3].
3.Determining Interest Rates
The central bank is the determinant of both the discount rates for commercial banks as well as providing directions for setting the interest rates for lending and
ПОЛИТИКА, ЭКОНОМИКА И ИННОВАЦИИ № 4 (51), 2023 deposits of bank customers in the financial system on special occasions. All of these decisions are very significant for determining the amount of money supply or the monetary circulation of a considerable economy.
When it comes to the activity of determining the discount rates, usually a discount rate is referred to as the interest percentage where the commercial banks are able to borrow funds from the central bank of the country, which is known as the discount rate. Commercial banks can borrow money from the Central Bank for very little cost whenever the Central Bank lowers the discount rate in order to pursue an expansionary monetary policy. Like a response, they are able to produce more credit, and much more cash enters the marketplace and boost the monetary circulation of the relevant financial system. The overall expenditure of the economy grows as a result, pushing up the aggregate demand curve [4].
4.Enforcing Reserve Requirements for Commercial Banks
In simple terms, a reserve requirement ratio refers to the percentage of funds a bank must maintain in its reserves and that cannot use to generate loans. The necessary cash reserves that banks are required to retain over their deposit liabilities can be fixed and varied by several central banks within certain parameters. This regulatory reserve requirements against deposits in several nations allow for the incorporation of other assets besides cash. Often, the goal of such inclusion seems to be to constrain the amount of credit that may be extended for other reasons by encouraging or requiring banks to invest in certain assets to a larger degree than they might otherwise be willing to. Contrary to this, it is occasionally further used promote particular credit categories, including such loans to small enterprises, housing, and agricultural.
The reserve requirement proportion is lowered by the Central bank whenever it intends to undertake an expansionary monetary policy. As a result, banks are able to provide more credit since the amount they must keep in reserves is reduced. As a consequence, the economy's rate of interest decreases, people have more money in their pockets, and the curve for aggregate demand rises altogether [5].
5.Management of the Official International Reserves
ПОЛИТИКА, ЭКОНОМИКА И ИННОВАЦИИ № 4 (51), 2023 According to the Monetary Law Act (MLA), CBSL is in charge of overseeing the official foreign exchange reserves of the local financial system in Sri Lanka. The MLA offers the required legal structure for handling the reserves of foreign currency, addressing issues such as the preservation and proportions of foreign currency reserves, steps taken to maintain the worldwide stability of the national currency, the range of foreign exchange activities conducted by CBSL, and the Monetary Board's authority and duties with regard to managing reserves of foreign currency. Improving security, liquidity, and yield goals are the primary areas on which CBSL concentrates on handling foreign reserves [6].
The international reserves were being primarily invested in fixed-income investments, instruments for the money market, and gold and are represented in a number of important currencies. Currently, American Dollars, British Pounds, Euros, Yen, Australian Dollars, and Chinese Yuan make up the majority of the reserves. The amount of International Reserves of the country is affected by the monetary circulation since when the central bank buys foreign currencies from the market as reserves using local currency, the amount of money supply within the financial system boost while if the central bank sells foreign currencies from the market being as reserves for local currency, the amount of money supply within the financial system reduce. These actions are taken by CBSL accordance with the requirements.
6.Issue and Distribution of the National Currency The Monetary Law Act grants the CBSL the only authority to issue Sri Lanka's legal tender money, including notes and coins. A new issue of national currency may boost the money supply within the economy. The requirement for transactions for each denomination seems to be the main factor that determines how much money is issued. The amounts, size, layouts, and other specifications of the cash bills and coins produced by CBSL are set by the Monetary Board with the agreement of the Minister responsible for Finance. At present, there are nine different cash banknote categories in use (Rupees 5000, 2000, 1000, 500, 200, 100, 50, 10) and ten different coin units (Rupees 10, 5, 2, 1, Cents 50, 25, 10, 5, 2, 1). In order to prevent imitation, the bigger denomination paper currency include improved security measures. The quality of
ПОЛИТИКА, ЭКОНОМИКА И ИННОВАЦИИ № 4 (51), 2023 currency notes that are circulated is being improved through the implementation of a clean note standard. The CBSL furthermore releases commemorative coins and bank notes [7].
References
1. Britannica, T. Editors of Encyclopaedia (2023, February 17). Central bank. Encyclopedia Britannica // https://www.britannica.com/ topic/central-bank
2. Monetary policy // https://www.cbsl.gov.lk/en/monetary-policy/about-monetary-policy
3. Central bank open market operations // https://www.elibrary.imf.org/view/journals/022/0005/001/article-A002-en.xml
4. How central bank affect interest rates // https://www.investopedia.com/ask/answers/031115/how-do-central-banks-impact-interest-rates-economy.asp
5. Variable reserve requirements against Commerubank // https://www.elibrary.imf.org/view/journals/024/1959/001/article-A002-en.xml
6. Monetary low act // https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/laws/acts/en/monetary _law_act.pdf
7. Currency management // https://www.cbsl.gov.lk/en/notes-coins/notes-and-coins/currency-management
