Central bank functions-controller of credit, Managerial Economics

Controller of Credit

The principles of credit control by the central bank were discovered and enunciated after the publication of Bagehot Lombard street in 1873. Even after 1873 the criteria by which the central bank acted were almost entirely rules of thumb and little or no attempt was made at conscious control in pursuit of a consistent policy before world war I. Today however control of credit is the most important function of a central bank and it embraces the most important aspect of central banking policy. It is through this function that all the order function are united and serve a common purpose. So important is this function that if finds place in the law of all central banks. For example the reserve bank of India act 1934, states that bank is generally to operate the currency and credit system of the country to its advantage. The need for controlling credit is obvious. Credit s has become more important than money although latter is the basis of the former. Unwarranted fluctuations in the volume of credit by causing wide fluctuations in the value of money cause great social and economic unrest in the country . the experience of last one hundred years is a testimony to the need for controlling credit in order to maintain the economic and political stability in the economy.

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