Money Supply In Singapore Essay

1753 words - 7 pages

Daniel Bataev, IBS 5304, DenmarkEssay 7. Central Bank: Controlling money supply & Monetary Policy. A Singapore Example.Today the Central Bank is the entity responsible for going through the monetary system for a nation and sometimes group of nations. Central banks have a wide range of its goals, starting with double-checking and creating its monetary policy, followed by implementing specific goals such as currency stability, low inflation and full employment. One of the main aims/goals of Central Bank is to issue currency. Furthermore, function as the bank of the government, regulate the credit system, oversee commercial banks, manage exchange reserves and act as a lender of last resort.To start with, Monetary Policy is one of the most effective tools a Central Bank can use. As it was mentioned above it is used to achieve the macroeconomic goals set by the government. Apparently, this could be done by regulating the very 2 components of monetary policy which are interest rates and money supply to maintain balance and stability in the economy.In this essay, I would pay attention to the Money Supply. When a Government wants to put money into economy so that making the so-called money flows the Central banks use several different methods to increase (or decrease) the amount of money in the banking system. While the Federal Reserve Board (the Fed) could print paper currency at its discretion in an effort to increase the amount of money in the economy, this is not the measure used - the Fed does the following:1. The Fed can interfere in and therefore change/influence the money supply by modifying reserve requirements, which is the amount of funds banks must hold against deposits in bank accounts. By lowering the reserve requirements, banks are able to loan more money, which increases the overall supply of money in the economy. Conversely, by raising the banks' reserve requirements, the Fed is able to decrease the size of the money supply.2. Furthermore, The Fed can change the money supply by changing ST interest rates. By lowering / raising the discount rate that banks pay on ST loans from the Federal Reserve Bank, the Fed is able to effectively increase (or decrease) the liquidity of money, which means that it will be fast to spend the money immediately or slow. Lower rates increase the money supply and boost economic activity; however, decreases in interest rates fuel inflation, so the Fed must be careful not to lower interest rates too much for too long as it may bring pretty hard consequences.''3. Finally, the Fed can affect the money supply by conducting open market operations, which affects the federal funds rate. In open operations, the Fed buys and sells government securities in the open market. If the Fed wants to increase the money supply, it buys government bonds. This supplies the securities dealers who sell the bonds with cash, increasing the overall money supply. Conversely, if the Fed wants to decrease the money supply, it sells...

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