Monetary regulation of the economy

The modern market needs monetary regulation from external regulators. This is due to the needs of the development of the market system, since it is not up to the decision of many social and economic problems. The concept of the "invisible hand of the market", according to which the latter should without anybody's help cope with all the challenges, has failed in many countries. And Russia well remembers the "shock therapy" of the nineties of the last century. The realization that the market itself can not exist is too late. Monetary regulation of the economy is one of the tools of external control of the market system. According to many economists, this is the most important tool. In the article, we will discuss monetary policy, goals, instruments, and types in more detail. And start with the basic definition.

The concept of

Monetary regulation of the economy is a complex of measures carried out by the Central Bank (CB) aimed at changing the parameters of the money supply.

This means that the Central Bank influences the money supply in the economy. And this measure affects the dynamics of money turnover. A little later we will discuss in more detail the methods of monetary regulation.

Objectives

At the macroeconomic level, the following regulatory objectives are distinguished:

1. Creating conditions for economic growth.
2. Maintenance of stable prices.
3. Ensuring the stability of interest rates on the domestic money market, the exchange rate.
4. Achievement of the maximum level of employment of the population.

The main objective of monetary regulation is the maintenance of stable prices. All the rest is derived from them. In the Russian economy, the maintenance of stable prices depends on a consistent reduction in the level of inflation. It influences the investment climate in the country and the strengthening of long-term economic growth.

The concept of inflation

Inflation is the decline in the purchasing power of a currency due to its depreciation. For example, annual inflation is fixed at 10%. From this follows that for 1000 rubles today you can buy as much goods as 1100 in a year.

Monetary regulation of the Central Bank is aimed primarily at reducing the level of inflation. Do not be surprised that Russian banks provide expensive loans. This is due to high inflation. It is also impossible to concentrate large sums in their hands, as every day the capital will "eat" the invisible laws of the market.

Limited capacity of the Central Bank

The Central Bank does not have legislative functions, so its task is reduced only to smoothing fluctuations in market segments.

Despite the limitations, the Central Bank can carry out monetary regulation, which is designed:

1. Increase the efficiency of participants in money turnover.
2. Protect the interests of the balance of market participants.
3. Protect from artificial increase in their costs.
4. To create conditions for investments.
5. Develop a competitive environment in the market.
6. Expand the market of banking services and improve their quality.

The role of monetary regulation is enormous for both macroeconomics in general and for each individual citizen in particular. Today we are seeing a situation where inflation is reduced. This led to a reduction in rates on bank deposits, which today rarely exceed 8% per annum. However, at the same time, economic regulators artificially reduce the real balance of market participants through other methods, for example, through the devaluation of the national currency. Those. The artificial decrease in the value of the ruble leads to a decrease in its purchasing power in world markets. Given the fact that our country imports all final goods, we are seeing a significant price increase. Hence it is clear that monetary regulation in Russia has its own specific feature, unlike in other countries. Therefore, one can not say that for each country there is a universal recipe for the right strategy. Effective methods for one country can lead to a complete financial collapse in another.

Objects

Monetary regulation is directed to the following objects:

1. Speed of money turnover.
2. Volume of loans.
3. Rate of national currency.
4. Demand and supply of national currency.
5. The volume of money supply in the economy.
6. Coefficients of monetary animation.

Monetary regulation of each of these indicators has a time frame. They are established at various levels of government. Therefore, it can not be said that the regulation of the monetary system is allegedly independent of the state only for the simple reason that it is the Central Bank, which does not submit to state authorities, regulates independently. It is from the coordinated actions of the state and the Central Bank that the effectiveness of the latter's actions depends.

Mechanism

The mechanism of monetary regulation includes:

• Forecasting.
• Planning
• Methods and instruments of impact.

Motives for the need for money

Regulation of monetary policy depends on the motive of the need for money.

The first kind is the transaction motive. It ensures the current economic functioning of the market participant. For an ordinary person, the transaction motive means a stock of money for monthly spending up to the next salary: products, utility payments, cellular payments, etc.

For enterprises, the transaction motive means money that is intended to support current economic activity (settlement with suppliers, payment of rent, etc.).

For the state it is a currency reserve , allowing to provide settlements in the external market.

The second type is the precautionary motive. It allows the market participant to create a reserve. For ordinary citizens it is postponing for a rainy day, deposits on a deposit in order to save funds, etc. Enterprises and states create reserve and stabilization funds.

The third kind is a speculative motive. Modern money alone is not a source of value preservation. Therefore, some of the funds are used to purchase intangible (financial) assets, which generate income in the form of various percentages. These include bonds, shares, production financial instruments.

Demand and supply of money

Demand and supply of money are the most difficult to predict values. It is impossible to foresee the future behavioral factor, since it depends not only on macroeconomic factors, but also on the development of the world economy. For example, the development of crypto-currencies and e-commerce leads to a decrease in demand for national currencies. The increase in demand for money depends on the following factors:

1. Reduction of inflation and inflationary expectations.
2. Growth of confidence in the banking system.
3. Growth in the economy.

It is possible to give a good example of monetary regulation of the Russian Federation after the crisis of 2008: the state passed a law under which all bank deposits were necessarily insured up to a certain amount. And you could not be afraid of the fact that the bank went bankrupt, because the state through insurance companies will compensate for the loss. This led to a greater confidence in the population in the banking system.

Demand for money is a key indicator. Effective methods and instruments of monetary regulation depend on the high demand for money. It is also worth considering that the desire to have money and the possibility of receiving them do not coincide. Here we are faced with such a concept as liquidity - cash and non-cash funds in bank accounts. Demand for money is defined as a proportional part of liquidity.

Velocity of money circulation

The monetary and credit policy of regulation of the economy depends on such indicator as the speed of money circulation. The growth of long-term deposits of banks is facilitated by a decrease in the speed of money, and vice versa, the persistence of a large amount of cash in the economy increases the speed of money flow.

Monetary proposal

The market regulator should correctly calculate the level of the saturation of money in the economy. Is it able to effectively use the increase in money supply? What are the inflation rates, inflation expectations and risk levels in the economy? Exact answers to these questions affect the behavior of the regulator. It is possible to give an example of the beginning of two thousand years in Russia. The huge inflow of money to the country, connected with the excess profit from the sale of hydrocarbons, had a negative impact on the economy as a whole. She could not "digest" the entire money supply without prejudice to production. Inflation accelerated to 10-12% per annum. In this regard, there was a significant increase in the cost of loans. Strongly affected were those sectors of the economy that were not connected with the oil and gas sector: agriculture, transport, transport, and the budgetary sphere. Investments in these industries were negligible compared to investments in other areas. There was also an imbalance in the incomes of ordinary citizens. For example, the average salary of a teacher was around 6-7 thousand rubles a month, and a handyman at construction sites earned several thousand rubles a day. Today we see that the disproportion in the sectors is not so noticeable, but now we have quite different problems in the economy.

The money supply is determined by:

1. The monetary base (assets) of the Central Bank. This includes loans to banks, securities - usually bonds in the treasury notes of the world's leading economies, - gold and foreign exchange reserves.
2. The interest rate on the domestic money market. It is also called the key refinancing rate. This is the percentage that the Central Bank lends to commercial banks. Naturally, it is lower than the interest for which the latter give loans to individuals and businesses, as it is superimposed on the future profit of the bank and the percentage of risk and non-return. For example, if the key refinancing rate is 7%, then the interest rate on a bank loan for an individual can not be lower, since no one will be lending to the loss. The interest rate on the short-term market is formed on the basis of the ratio of the reserves of the banking system to its deposits. Today we are seeing an interesting situation that could not be imagined in the whole recent history of our country: people put huge amounts of money into bank deposits, which, besides, are almost all insured. In this regard, financial regulators squeeze money from citizens from banks, creating conditions for low interest on deposits.
3. Creating a permanent reserve.

The banking system as the most important factor in influencing the supply of money

The banking system exerts the greatest influence on the supply of money. Let's list the methods and instruments of monetary regulation:

1. Reduction or increase in the issuance of money.
2. Creation of a stable monetary turnover.
3. Conducting operations in the financial market to regulate money turnover.

The methods of monetary regulation in economically developed countries and developing are fundamentally different.

The central bank is the key player in regulation. To this end, he applies the following instruments for regulating monetary policy:

1. Issue of cash.
2. Refinancing of banks, i.e., the Central Bank becomes a "bank for banks" and issues loans to commercial banks at the rates set by it. The latter funds are refinanced on the domestic market at a higher rate.
3. Operations in the open market for the purchase and sale of securities and currencies for settlements in the international arena.

Thanks to the operations listed above, a single mechanism of monetary regulation is being formed.

So, the Central Bank of the country plays the most important role in macroeconomics. More details on this economic entity are given in the article.

CBR status

In the Russian banking system, the CBR is the country's main bank. It is at the top of the entire financial system of the country and is called upon to adjust the rate of all other banks in line with the overall economic strategy. This is due to refinancing and control. As a last function, the Central Bank has the right to suspend the activities of any credit institution, revoking its license. Recently, a rather impressive list of such unlucky people has already accumulated. Many even had an opinion that the Central Bank is completely clearing the ground for large banks with state participation.

The Central Bank is also the key agent of the state's monetary and credit policy. However, he uses non-directive methods to achieve his goals, and economic management methods.

Who obeys the Central Bank of Russia?

Despite the fact that the Central Bank of Russia is the main bank of the country, which is the only one who has the right to print rubles, it does not obey either the government of the Russian Federation or any other state body. If our state does not have enough money to pay salaries, pensions and benefits, the Central Bank of Russia will not lend to the government. This paradoxical system was built from the very beginning of the formation of independent Russia. It is this circumstance that gives rise to many political scientists to call Boris N. Yeltsin, the first president of Russia, a traitor to the Motherland. Who is subject to the Bank of Russia? Some state with certainty that the Central Bank of our country is a branch of the Federal Reserve System, others attribute it to the International Monetary Fund, which is more just, since there is a direct mention of it in the Law. However, both are confident that we are ruled by the Rothschilds and the Rockefellers.

But it is worth analyzing the Federal Law on the "Central Bank of the Russian Federation", everything falls into place: the Central Bank consists of a head and members of the board of directors in the number of 14 people. All of them are elected by the State Duma in coordination with the president of the Russian Federation. Now it is necessary to answer the logical question: is the Central Bank of Russia really such a pro-American organization? The affirmative answer will only be if the parliament itself is also pro-American.

Also, the amateurs of attributing the US Central Bank to the US Central Bank will clarify that, since 2014, 75% of all profits are transferred by the Central Bank to the Russian budget, and the remaining 15% goes to Vnesheconombank.

Be that as it may, the law really severely separates the Central Bank of Russia from the government of the Russian Federation. And if they quarrel among themselves, then the supremacy will be for the Central Bank, since the disputable issues are resolved in the International Courts, whose decisions on the Constitution are higher than the decisions of the domestic courts. This is our Constitution, which has been operating in the country since 1993.

Functions of the Central Bank of Russia

The Bank of Russia performs the following functions:

1. It is a lender for domestic credit institutions.
2. Develops in common with the Government of the Russian Federation a single monetary policy.
3. Has a monopoly on the issue of the national currency.
4. It establishes currency control.
5. Establishes rules for conducting banking operations, reporting for the banking system and accounting.

From the list, you can see that the Central Bank is working with the government. That is, they act as partners, and there is no hint of subordination. It is this fact that allows many to say that Russia is a colony of the financial system of the West. However, the defenders of such a system are sure that it helps to curb the arbitrariness of local Russian officials from uncontrolled issue of money and from constant domestic lending. It is enough to analyze the amount of corruption that does not hide to ask: is external control over the printing press really a negative factor? Perhaps, only this fact somehow saves the country from total inflation.

Attempts to return "independence"

In our country there are a number of deputies and politicians who openly advocate the nationalization of the Central Bank. They constantly submit to the State Duma a draft law, but a negative wave of public criticism immediately rises against it. Why is this happening? It is possible that our citizens do not trust our own state, which many times deceived them. For many, the option of the independence of the Central Bank of Russia from the government gives more confidence in the future than transferring it to the state, where there will be no control over the money supply. Let us recall the times of the USSR: everyone had money, but nobody wanted to sell goods for anyone who did not need paperwork, because the state kept interfering with the monetary and monetary policies of the Bank for the sake of momentary political gain to the detriment of development. Therefore, there was a situation when manufacturers stored goods in warehouses, unwittingly creating a deficit, and exchanged it for "black markets" at a fair price. No administrative measures helped to force co-operators to enter the legal market. That is why our citizens were left without their contributions, since for the recovery of the economy it was necessary to completely destroy them by freezing accounts and overclocking hyperinflation.

State Bank of the USSR

In the Soviet Union, the State Bank was fully subordinate to the Council of Ministers of the USSR. The amount of money was determined by directive methods. The Council of Ministers of the USSR gave an order, and the Bank issued emissions on its basis. This led to a situation that in economic science was called "suppressed inflation." In other words, it can be characterized as follows: everyone has money, but you can not buy anything on them. This is understandable: manufacturers preferred to keep the goods in warehouses and not sell it, since the money did not have the value to which we are accustomed today. In fact, the natural exchange has blossomed, which is comparable with the feudal system. A similar situation can happen again if the Bank of Russia is nationalized.