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    MD Naimur Rahman 32025

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    Naeem UR Rahman
    Bangladesh Bank is the central bank of Bangladesh. It was established in 1972 and has ten offices located throughout Bangladesh. It performs core functions like formulating and implementing monetary policy, regulating banks, managing international reserves, and issuing currency. Some key ways central banks control money supply include setting reserve requirements for banks, conducting open market operations like buying and selling government securities, and introducing quantitative easing programs during economic crises to increase the money supply. Controlling the quantity of money circulating in the economy is important for achieving economic goals and maintaining stability.

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    MD Naimur Rahman 32025

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    Naeem UR Rahman
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    Bangladesh Bank is the central bank of Bangladesh. It was established in 1972 and has ten offices located throughout Bangladesh. It performs core functions like formulating and implementing monetary policy, regulating banks, managing international reserves, and issuing currency. Some key ways central banks control money supply include setting reserve requirements for banks, conducting open market operations like buying and selling government securities, and introducing quantitative easing programs during economic crises to increase the money supply. Controlling the quantity of money circulating in the economy is important for achieving economic goals and maintaining stability.

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    Bangladesh Bank is the central bank of Bangladesh. It was established in 1972 and has ten offices located throughout Bangladesh. It performs core functions like formulating and implementing monetary policy, regulating banks, managing international reserves, and issuing currency. Some key ways central banks control money supply include setting reserve requirements for banks, conducting open market operations like buying and selling government securities, and introducing quantitative easing programs during economic crises to increase the money supply. Controlling the quantity of money circulating in the economy is important for achieving economic goals and maintaining stability.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    39 views4 pages

    MD Naimur Rahman 32025

    Uploaded by

    Naeem UR Rahman
    Bangladesh Bank is the central bank of Bangladesh. It was established in 1972 and has ten offices located throughout Bangladesh. It performs core functions like formulating and implementing monetary policy, regulating banks, managing international reserves, and issuing currency. Some key ways central banks control money supply include setting reserve requirements for banks, conducting open market operations like buying and selling government securities, and introducing quantitative easing programs during economic crises to increase the money supply. Controlling the quantity of money circulating in the economy is important for achieving economic goals and maintaining stability.

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    of 4

    Topic: How central banks of Bangladesh use monetary

    policy for controlling money supply in the economy?


    Course code: FIN-409
    Course title: Financial markets & institution
    Name: MD Naimur rahman
    ROLL: 32025
    Registration NO: 171201025
    Submission date: September 29, 2020
    How central bank of Bangladesh use monetary policy for
    controlling money supply in the economy?

    Bangladesh Bank, the central bank and apex regulatory body for the country's monetary and
    financial system, was established in Dhaka as a body corporate vide the Bangladesh Bank Order,
    1972 (P.O. No. 127 of 1972) with effect from 16th December, 1971. At present it has ten offices
    located at Motijheel, Sadarghat, Chittagong, Khulna, Bogra, Rajshahi, Sylhet, Barisal, Rangpur
    and Mymensingh in Bangladesh; total manpower stood at 5807.

    Functions
    BB performs all the core functions of a typical monetary and financial sector regulator, and a number of other non
    core functions. The major functional areas include :
     Formulation and implementation of monetary and credit policies.
     Regulation and supervision of banks and non-bank financial institutions, promotion and development .
     Management of the country's international reserves.
     Issuance of currency notes.
     Regulation and supervision of the payment system.
     Acting as banker to the government .
     Money Laundering Prevention.
     Collection and furnishing of credit information.
     Implementation of the Foreign exchange regulation Act.
     Managing a Deposit Insurance Scheme .

    How Central Banks Control the Supply of Money

    If a nation’s economy were a human body, then its heart would be the central bank. And just as the heart works to
    pump life-giving blood throughout the body, the central bank pumps money into the economy to keep it healthy and
    growing. Sometimes economies need less money, and sometimes they need more.

    The methods central banks use to control the quantity of money vary depending on the economic situation and power
    of the central bank. In the United States, the central bank is the Federal Reserve, often called the Fed. Other
    prominent central banks include the European Central Bank, Swiss National Bank, Bank of England, People’s Bank
    of China, and Bank of Japan.

    Let's take a look at some of the common ways that central banks control the money supply—the amount of money in
    circulation throughout a country.

    Why the Quantity of Money Matters


    The quantity of money circulating in an economy affects both micro- and macroeconomic trends. At the micro-level, a
    large supply of free and easy money means more spending by people and by businesses. Individuals have an easier
    time getting personal loans, car loans, or home mortgages; companies find it easier to secure financing, too.

    At the macroeconomic level, the amount of money circulating in an economy affects things like gross domestic
    product overall growth, interest rates, and unemployment rates. The central banks tend to control the quantity of
    money in circulation to achieve economic objectives and affect monetary policy.

    Print Money
    Once upon a time, nations pegged their currencies to a gold standard, which limited how much they could produce.
    But that ended by the mid-20th century, so now, central banks can increase the amount of money in circulation by
    simply printing it. They can print as much money as they want, though there are consequences for doing so.

    Merely printing more money doesn’t affect the economic output or production levels, so the money itself becomes
    less valuable. Since this can cause inflation, simply printing more money isn't the first choice of central banks.

    Set the Reserve Requirement


    One of the basic methods used by all central banks to control the quantity of money in an economy is the reserve
    requirement. As a rule, central banks mandate depository institutions (that is, commercial banks) to keep a certain
    amount of funds in reserve (stored in vaults or at the central bank) against the amount of deposits in their clients'
    accounts.

    Influence Interest Rates


    In most cases, a central bank cannot directly set interest rates for loans such as mortgages, auto loans, or personal
    loans. However, the central bank does have certain tools to push interest rates towards desired levels. For example,
    the central bank holds the key to the policy rate—the rate at which commercial banks get to borrow from the central
    bank (in the United States, this is called the federal discount rate.

    Engage in Open Market Operations


    Central banks affect the quantity of money in circulation by buying or selling government securities through the
    process known as open market operations (OMO). When a central bank is looking to increase the quantity of money
    in circulation, it purchases government securities from commercial banks and institutions. This frees up bank assets:
    They now have more cash to loan. Central banks do this sort of spending a part of an expansionary or easing
    monetary policy, which brings down the interest rate in the economy.

    Introduce a Quantitative Easing Program


    In dire economic times, central banks can take open market operations a step further and institute a program of
    quantitative easing. Under quantitative easing, central banks create money and use it to buy up assets and securities
    such as government bonds. This money enters into the banking system as it is received as payment for the assets
    purchased by the central bank. The banks' reserves swell up by that amount, which encourages banks to give out
    more loans, it further helps to lower long-term interest rates and encourage investment.

    After the financial crisis of 2007–2008, the Bank of England and the Federal Reserve launched quantitative easing
    programs. More recently, the European Central Bank and the Bank of Japan have also announced plans for
    quantitative easing.

    The Bottom Line


    Central banks work hard to ensure that a nation's economy remains healthy. One way central banks accomplish this
    aim is by controlling the amount of money circulating in the economy. Their tools include influencing interest rates,
    setting reserve requirements, and employing open market operation tactics, among other approaches. Having the
    right quantity of money in circulation is crucial to ensuring a stable and sustainable economy.

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