1. By Fairuz Chowdhury Lecturer, BBS

2. ◦ Low, stable inflation ◦ High, stable growth with high employment ◦ stable financial markets ◦ interest rate stability

3.  Central bank- Meaning, Definitions  Functions  Roles  Goals

4. “ A central bank is a lender of last resort” -- Prof.Hawtry “It is a bank of banker” -- Samuelson “Bank which has monopoly over note issue” -- Vera Smith “Central bank is the government’s bank” -- Sayers

5.  Bank of Note issue  The Government’s Bank  Market Stabilization  Banker’s Bank  Lender of last resort  Protecting and improving the flow of payments

6.  To avoid sever inflation  Money: Medium of Exchange & Store of Value.  Changes in money supply is closely linked to changes in economic activity.  The marginal cost of creating additional units of money is zero.  Why not increase money supply ????????

7.  Fin. System: Savings Investments  Imp: public confidence Avoid: volatile fluctuations in int. rate and security prices leads to fin. Ins. collapses  Function: Stable flow of funds

8.  Provide liquid funds when other sources of funds have dried up ( usually in the discount window).  Support: Liquidity pressures  Through discount window: large sources of emergency funds can be provided.

9.  Central Banks Aids: Clearing checks, providing supply of currency and coin, wiring funds & preserving confidence in the value of fundamental monetary unit.

10.  Achieving maximum sustainable output and employment  Promoting stable prices Imp: Avoiding severe inflation. Keep in mind: monetary policy has a long term impact on inflation.