Credit Control

The 1110stimportant function of the central bank i the cuntrol credit. The control of credit means the regulation and control of bank advances. It goc, without saying that the nature and volume of varices have a vital bearing on the state of the eCOIIUIIl). There IS a time when trade and industry need finance, whereas the banks may feel shy. The central bank must step in to stimulate bank advances. At other times, the banks’ lending may assume undesirable proportions or they may be flowing into undesirable proportions or they may he flowing into underisablc hannels. It is the duty of the central hank to CUIb these undesirable tendencies by regulating and cunuolling credit creation by banks. In view of the great importance of the control  of credit, we discuss it below at sonic length.

Economic Stability 

more recent view rejects the aims both of exchange stability and of internal price tability. It is held that the central hank hould ann at smoothening out the business cycle, which may not result merely (’10m price movement, The aim should be to maintain a normal steady grow th III’ husines-, activity and prevent booms and vlumps. Regarding the adcqua y ul the hanking policy in this regard, Crowther remark. “Banking policy will never be sufficient by itself to hnng economic utopia into being. Ito first task should he to prevent the untural instability of a complex credit system Irom incrcasing the amplitude (If economic fluctuations. Its see- OIlU task should he to ••ucmpt deliberately to offset sonic uf the causes of disturbance that arc beyond its control. But for those causes themselves we must luok outside the realm of money.’? (For detailed discussion see Chapter 58 on Foreign Exchanges).