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Answer with Reason, Whether You Agree Or Disagree with the Following Statement.The Central Bank Has Control Over Credit Creation. - Economics

Answer with reason, whether you agree or disagree with the following statement.

The Central bank has control over credit creation.

 

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Solution

We agree with the given statement.

Although it is the commercial banks that create the credit money but the central bank controls the volume of credit created. ​Credit control refers to the control on the quantum of credit and the direction of its flow in the economy. This is done to achieve growth with stability. Therefore, we can say that credit control is the function of the central bank of a country. The Central Bank can use various quantitative and qualitative measures for controlling credit in the economy. The following are some of the tools to control credit flow:
Quantitative measures:
i. Bank rate
ii. Open market operations
iii. Varying reserve ratio or Cash reserve ratio Qualitative measures:
i. Issue of directives
ii. Moral suasion
iii. Direct Action

Concept: Method of Credit Control - Quantitative
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