Monetary regulation of the economy

The modern market needs monetary regulation by external regulators. This is due to the needs of the development of a market system, since it itself is not subject to the solution of many socio-economic problems. The concept of the “invisible hand of the market, ” according to which the latter must cope with all the challenges without any help, 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 cannot exist has come too late. Monetary regulation of the economy is one of the instruments of external control of the market system. According to many economists, this is the most important tool. In the article we will examine in more detail the monetary policy, goals, instruments, types. And start with a basic definition.

The concept

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

This means that the Central Bank affects the money supply in the economy. And this measure affects the dynamics of money turnover. Below we will examine in more detail the methods of monetary regulation.

Goals

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

1. Creation of conditions for economic growth.

2. Maintaining stable prices.

3. Ensuring the stability of interest rates in the domestic money market, exchange rates.

4. Achieving maximum employment.

The main goal of monetary regulation is to maintain stable prices. Everything else is derived from them. In the Russian economy, maintaining stable prices depends on a consistent decrease in inflation. It affects the investment climate in the country and the strengthening of long-term economic growth.

Concept of inflation

Inflation is a decrease in the purchasing power of a currency due to its depreciation. For example, annual inflation is fixed at 10%. From this it follows that for 1000 rubles today it will be possible to buy the same amount of goods as for 1100 in a year.

Monetary regulation of the Central Bank is aimed primarily at reducing 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 one’s hands, as the invisible laws of the market will “eat up” capital every day.

Limited Central Bank Opportunities

The Central Bank does not have legislative functions, so its task is only to smooth out market fluctuations in certain segments of the financial market.

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

1. To increase the efficiency of the participants in cash turnover.

2. Protect the interests of the balance of market participants.

3. Protect from artificial increase in their costs.

4. Create conditions for investment.

5. Develop a competitive environment in the market.

6. To expand the market for banking services and improve their quality.

The role of monetary regulation is enormous both for the macroeconomics as a whole and for each individual citizen in particular. Today we are witnessing a situation where inflation is reduced. This has led to a reduction in bank deposit rates, 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 devaluation of the national currency. Those. Artificially reducing 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 consumer goods, we are seeing a significant increase in prices. Hence it is clear that monetary regulation in Russia has its own specific feature, unlike other countries. Therefore, one cannot say that for every country there are universal recipes for the right strategy. Effective methods for one country can lead to a complete financial collapse in another.

The objects

Monetary regulation is aimed at the following objects:

1. Money turnover rate.

2. The amount of loans.

3. The national currency rate.

4. Demand and supply of national currency.

5. Money supply in the economy.

6. Odds of money animation.

Monetary regulation of each of these indicators has a time frame. They are established at various levels of government. Therefore, it cannot be said that the regulation of the monetary system does not supposedly depend on the state for the simple reason that it is the Central Bank, which is not subordinate to state authorities, that regulates itself. It is the coordinated actions of the state and the Central Bank that the effectiveness of the actions of the latter depends.

Mechanism

The mechanism of monetary regulation includes:

• Forecasting.

• Planning

• Methods and tools of exposure.

Motives need money

The regulation of monetary policy depends on the motive of the need for money.

The first view is a transactional motive. It provides the current economic functioning of a market participant. For an ordinary person, a transactional motive means a supply of money for monthly expenses up to the next salary: products, utility bills, cellular communications, etc.

For enterprises, a transaction motive means funds that are designed to support current business activities (settlement with suppliers, payment of rent, etc.).

For the state, this is a reserve of currency that allows for settlements on the foreign market.

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

The third type is a speculative motive. Modern money alone is not a source of value conservation. Therefore, part of the funds is used to purchase intangible (financial) assets that generate income in the form of various percentages. These should include bonds, stocks, production financial instruments.

Demand and supply of money

The demand and supply of money are the most difficult to predict quantities. It is impossible to predict 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 cryptocurrencies and electronic commerce leads to a decrease in demand for national currencies. The increase in demand for money depends on the following factors:

1. Decrease in inflation and inflation expectations.

2. Growing confidence in the banking system.

3. Economic growth.

You can give a good example of the monetary regulation of the Russian Federation after the crisis of 2008: the state adopted a law under which all bank deposits up to a certain amount are obligatory insured. And one could not be afraid that the bank would go bankrupt, as the state through insurance companies would compensate for the loss. This led to the fact that the population has increased confidence in the banking system.

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

Money velocity

The monetary policy of economic regulation also depends on such an indicator as the velocity of money. The growth of long-term bank deposits contributes to a decrease in the speed of money, and vice versa, the preservation of a large amount of cash in the economy increases the speed of money movement.

Money offer

The market regulator must correctly calculate the level of money saturation in the economy. Is she able to effectively use the increase in money supply? What are the inflation rates, inflation expectations and risk levels in the economy? The exact answers to these questions affect the behavior of the regulator. One can cite as an example the beginning of the 2000s in Russia. The huge influx of money into the country, associated with excess profits 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. Those sectors of the economy that were not connected with the oil and gas sector were badly affected: agriculture, transportation, transport, and the public sector. Investments in these sectors were negligible compared to investments in other areas. There was also an imbalance in the income of ordinary citizens. For example, the average teacher's salary was in the region of 6-7 thousand rubles a month, and the handyman at construction sites earned several thousand rubles a day. Today we see that the imbalance in the sectors is not so noticeable, but now we have completely different problems in the economy.

Money offer is determined by:

1. The monetary base (assets) of the Central Bank. This includes loans to banks, securities - usually bonds in treasury bills of the world's leading economies - gold and foreign exchange reserves.

2. Interest rate in the domestic money market. It is also called the key refinancing rate. This is the percentage at which the Central Bank provides loans to commercial banks. Naturally, it is lower than the interest at which the latter give loans to individuals and business entities, since the future profit of the bank and the percentage of risk and defaults are superimposed on it. For example, if the key refinancing rate is 7%, then the interest on a bank loan for an individual cannot be lower, since no one will lend at a loss. The interest rate in the short-term market is formed on the basis of the ratio of reserves of the banking system to its deposits. Today we are witnessing an interesting situation that could not be imagined in the entire recent history of our country: people put enormous funds into bank deposits, which, moreover, almost all are insured. In this regard, financial regulators squeeze citizens' money from banks, creating conditions for low interest on deposits.

3. The creation of a permanent reserve.

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

The banking system has the greatest impact on the money supply. We list the methods and tools of monetary regulation:

1. Reduction or increase in the issue of money.

2. Creating a sustainable cash flow.

3. Conducting operations in the financial market to regulate cash flow.

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

The central bank is a key player in regulation. To do this, he applies the following monetary policy regulation tools:

1. Issue of cash.

2. Bank refinancing, that is, the Central Bank becomes a “bank for banks” and issues loans to commercial banks at the rates set by it. The latter funds are re-credited in the domestic market at a higher percentage.

3. Operations on the open market for the sale of securities and currencies for settlements in the international arena.

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

So, the most important role in macroeconomics belongs to the Central Bank of the country. We will cover this economic subject in more detail later 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 designed to adjust the rate of all other banks in accordance with the general 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 by revoking its license. Recently, a rather impressive list of such unlucky people has already been gathered. Many even have the opinion that the Central Bank completely clears the platform for large banks with state participation.

The Central Bank is also a key agent of the monetary policy of the state. However, he uses not prescriptive methods to achieve his goals, but economic management methods.

Who is subject to 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 that has the right to print rubles, it is not subordinate either to the government of the Russian Federation or to any other state body. If our state does not have enough money to pay salaries, pensions and benefits, then 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 the basis to many political scientists to call B. N. Yeltsin - the first president of Russia - a traitor to the homeland. To whom does the Bank of Russia report? Some people confidently state that the Central Bank of our country is a branch of the Federal Reserve System, while others attribute it to the International Monetary Fund, which is more fair, since there is a direct mention of it in the Law. However, both are convinced that we are ruled by the Rothschilds and 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 the head and members of the board of directors in the amount of 14 people. All of them are elected by the State Duma in agreement with the President of the Russian Federation. Now it is necessary to answer the logical question: is the Central Bank of Russia such a pro-American organization? An affirmative answer will be only if the country's parliament itself is also pro-American.

Also, we will explain to fans of attributing the Central Bank of Russia to the USA that since 2014, 75% of all profits of the Central Bank of the Russian Federation have been transferred to the budget of the Russian Federation, and the remaining 15% goes to Vnesheconombank.

Be that as it may, the law really strictly separates the Central Bank of Russia from the Russian government. And if they quarrel among themselves, then the supremacy will be with the Central Bank, since disputed issues are resolved in international courts, the decisions of which under the Constitution are higher than decisions of internal courts. Such is our Constitution, which has been in force 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 to credit organizations within the country.

2. Together with the Government of the Russian Federation, it is developing a unified monetary policy.

3. It has a monopoly on the issue of national currency.

4. Establishes currency control.

5. Establishes the rules for conducting banking operations, reporting for the banking system and accounting.

From the list you can see that the Central Bank works together 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, advocates of such a system are confident that it can curb the arbitrariness of local Russian officials from uncontrolled emission of money and from constant domestic lending. It is enough to analyze the amount of corruption that is no longer concealed to ask the question: is external control over the printing press really a negative factor? Perhaps only this fact somehow saves the country from total inflation.

Attempts to regain "independence"

In our country there are a number of deputies and politicians who openly support the nationalization of the Central Bank. They constantly submit a draft law to the State Duma, 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 deceived them many times. For many, the option of independence of the Central Bank of Russia from the government gives more confidence in the future than handing it over 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 no one wanted to sell goods for useless pieces of paper, since the government all the time intervened in the monetary and monetary policy of the Bank for the sake of momentary political gain to the detriment of development. Therefore, there was a situation where manufacturers stored goods in warehouses, involuntarily creating a deficit, and exchanged them at the “black markets” at a fair price. No administrative measures helped get co-operators to enter the legal market. That is why our citizens were left without their contributions, since in order to improve the economy it was necessary to completely destroy them by freezing accounts and accelerating hyperinflation.