Role of Central Bank In Underdeveloped Money Market

Supervision of banks

Central bank has the authority to supervise, and enforce laws upon commercial banks.

This reduces bank failure and raises public confidence, and

raises the groundwork for stable banking system.

Promotion of Banking Habits

This is done by expanding financial literacy.

by supporting financial education programs.

Central bank encourages public to use formal bank accounts instead of informal ones.

Credit allocation

Central bank provides loans to productive sectors such as agriculture, or industries and exports to prevent exploitation by money lenders, and assists their growth.

Development of financial institutions

Central bank establishes specialized banks like agriculture banks, industrial banks and also promotes them to deepen the market, and provide safe liquid assets for investors.

Monetary policy implementation

By using the right tools of monetary policy, central bank manages liquidity, and prevents inflation.

This is to create a safe place for investors, and develop sectors.

Lender of last resort

During liquidity shortages, central bank lends liquidity to commercial banks as emergency funds.

Foreign exchange management

By managing foreign reserves, the central bank stabilizes exchange rate and supports trade finance.

Important for countries that rely of exports and imports.

Integrating money market

The rural and urban credit markets remain disconnected. The central bank aims to connect these markets, so savings can flow smoothly.