Sab, Jovanie BSHRM 3B Chapter 11: Money and Monetary Policy Written Report C.

Sources of Money Supply Money Supply The lending operation of the banking system determines the volume of money checks it creates. Print new money to help finance its expanding operations. Taxes also change the level of money supply as leakages from to circular flow. Bank Credit to Government 2 Advances to Private Commercial Sector Foreign exchange assets (net) of Banking Sector less Non-monetary liabilities. D. Money and the Central Bank D (1) Functions of the Central Bank The primary functions of Central Bank are to manage the nations money supply and to administer the monetary, banking and credit system. Central Banks are charged with regulating the size of a nations money supply, the availability and cost of credit, and the foreign-exchange value of its currency. Regulation of the availability and cost of credit may be designed to influence the distribution of credit among competing uses. The principal objectives of a modern central bank in carrying out these functions are to maintain monetary and credit conditions conducive to a high level of employment and production, a reasonably stable level of domestic prices, and an adequate level of international reserves. Function of a Central Bank A central bank usually carries out the following responsibilities:

Implementation of monetary policy. Controls the nation's entire money supply. The Government's banker and the bankers' bank ("Lender of Last Resort"). Manages the country's foreign exchange and gold reserves and the Government's stock register; Regulation and supervision of the banking industry Setting the official interest rates- used to manage both inflation and the country's exchange rate - and ensuring that this rate takes effect via a variety of policy mechanisms

Sab, Jovanie BSHRM 3B Chapter 11: Money and Monetary Policy Written Report Monetary Policy and Central Bank Monetary policy is the process by which the monetary authority of a country control the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. Monetary policy differs from fiscal policy, which refers to taxation, government, and associated borrowing. Most countries with a mature economic system have some form of a central bank serving as the principle authority for the countrys financial matters. While specific tasks and functions may vary, the primary duties for the majority of central banks can be summarized as follows:

Implement a monetary policy that provides stable growth and employment Promote the stability of the countrys financial system Manage the production and distribution of the nations currency

For this article, the term central bank is used to represent any institution performing these duties. To learn more about specific responsibilities for individual central banks, please refer to the series of articles for the following countries / regions:

European Union Central Bank United Kingdom (Bank of England) United States (Federal Reserve System the Fed) Canada (Bank of Canada) Switzerland (Swiss National Bank) Japan (Bank of Japan) Australia (Reserve Bank of Australia)

Fiscal and Monetary Policy The terms fiscal policy and monetary policy are often used interchangeably, but these terms have different implications and you should be clear on the distinction. Fiscal policy is the economic direction a government wishes to pursue with respect to taxation, spending and borrowing. Only government bodies have the ability to raise revenues through taxation, but in return, citizens expect government to spend the tax revenue it collects on the provision of services to the citizens it serves. Monetary policy on the other hand, is the set of actions a government takes usually through some form of a central bank that influences the economy. A government has several options at its disposal and most concentrate on establishing short-term interest rates intended to expand or contract the economy, depending on the latest inflation concerns. By influencing the demand for currency through interest rates, the central bank attempts to maintain a favorable environment for economic growth as well as the preservation of value for the currency.