In the sphere of monetary regulation, priority is given to economic methods. They include a certain set of tools. One of them is the emission mechanism. This regulatory tool is used according to strictly centralized rules. Consider its features in more detail.
General information
According to Art. 35 Federal Law No. 86, which regulates the functions of the Central Bank, as key economic methods for regulating the financial sphere are:
- Betting on transactions.
- Norms of required reserves.
- Open market operations.
- Placement of equity securities.
- Refinancing of credit companies.
- Foreign exchange intervention.
- Quantitative direct limits.
- Establishing directions for increasing the money supply.
Financial regulation acts as a key tool for managing the economy. Violation of its mechanism negatively affects the state of the economic system. This is due, in particular, to the fact that excessive release of money, for example, leads to inflation, a decrease in the purchasing power of funds, and depreciation of capital. Lack of finance, on the contrary, contributes to the limitation of economic growth opportunities, leading to a crisis of non-payments.
Organization of cash flow
It can be carried out using banknotes. In this case, there is a cash flow of funds. The process is regulated by the Central Bank. It is this structure that has the right to use the emission mechanism in its activities. This is fixed at the legislative level. At the same time, the norms established that this monopoly was established exclusively with respect to banknotes and, in certain cases, coins. Cash turnover accounts for a fairly small share, even in calculations carried out by the population. It is less than 5-10%. Turnover planning is impractical. This is due to the fact that money is sold by banking institutions through branches of the Central Bank, depending on demand. They cannot be used to cover the budget deficit. In this regard, the banknote emission mechanism is a rather flexible instrument. It is not tied to macroeconomic indicators and is not under strict control by the regulator.
Implementation specifics
The issuance of banknotes differs from the formation of government debt obligations in that the former, acting as demand bills, are used as legal tender. They do not imply interest. Modern money has a credit character. In this regard, bank accounts are essentially the same as banknotes. They act as the main component of the mass of money in circulation. Central banks of developed countries often carry out not only the production and withdrawal of money from circulation. They can also design, protect banknotes from counterfeiting. Old bills must be periodically removed. This is primarily due to the improvement of engineering and technology. With the development of computer programs, it becomes easier for attackers to fake banknotes. The central bank, acting as a state regulator, must respond to such phenomena in a timely manner and prevent them. The functions of the Central Bank may include the solution of other technical issues.
Security
Banknotes do not indicate that they are protected by various assets. For example, they can be provided with precious metals, gold and so on. This is reflected in the published balance sheets. An asset is the asset of the Central Bank. Its key articles, as a rule, are gold and foreign exchange reserves, loans to banking institutions secured by shares or a portfolio of government bonds. In different countries, the issue of securing banknotes is addressed differently. However, in any case, it has a legal basis. Quite often, the legislation determines the nature of collateral and, accordingly, indirect standards of banknote production.
Additionally
In the financial sector, various calculation tools are used. One of them is a freely convertible currency. It is a tool, the use of which is allowed not only in the countries that created them, but also outside them. This type of currency is accepted in all states in which conversion to national finance is carried out. It can be used in a variety of calculations without any restrictions, except for those established by the government to protect the country's own funds. The rate of such a currency is set exclusively in open bidding. The state does not have the right to artificially limit the value of national funds. As one of the acceptable options for intervention may be the currency intervention of the Central Bank. However, in this case, only market methods can be used, suggesting an increase in the supply of funds on the exchange, reducing their cost.
Cashless turnover
It is a rather specific problem. The Central Bank has neither an actual nor a formal monopoly on the non-cash issue mechanism. This is manifested in the following. Financial institutions deposit mainly mandatory reserves with the Central Bank. This is a requirement of the state regulatory authority. A smaller proportion of deposits are funds used for clearing settlements. Their size, as a rule, is not more than 30-50% of the balance of the Central Bank, and sometimes less.
Non-cash issue is used not only by the state regulator. Other banks can also generate a lot of financial resources in the same way as the Central Bank. However, the difference is that for commercial entities such an emission mechanism is a tool for developing their own operations. The Central Bank, on the other hand, uses it when there is a lack of means to regulate the liquidity of the banking structure. By analyzing the balance sheets of the regulator, it becomes clear that the share of its non-cash emissions is insignificant in comparison with other financial organizations.
Practical implementation
Consider the placement of securities. According to the Civil Code, documents certifying property rights are recognized as them, the transfer or sale of which is allowed only upon presentation. Securities must have the established form and mandatory details. The implementation of documents is carried out on the primary trading floors. The key market participants are investors and issuers. The latter determine the proposal, because they need to receive financial resources. Investors, in turn, are looking for favorable conditions for the sale of equity. Accordingly, they form demand.
Primary market
It mobilizes free funds and invests them in the economy. However, it not only contributes to the expansion of accumulation on the scale of the national economic system. Within the framework of the primary market, funds are distributed among economic sectors and industries. The placement criterion is the profit that the securities bring. This, in turn, means that funds are directed to spheres, sectors of the economy, and to enterprises that maximize income. The primary market, therefore, acts as the actual regulator of the national economic system. Issuers can be municipalities, government, companies. The role of each group is determined by the state of the economy and the general level of its development. The chronic deficit of the state budget determines the priority position of the state in the market.
Stocks
The issue of these securities is carried out by enterprises in the process of their creation, with an increase in the amount of their authorized capital or to attract additional resources. The primary procedure is the sale of shares to investors - the first owners. Such an issue is made at the time of the establishment of the company or with an increase in its authorized capital. Borrowed funds are financed through the creation of bonds.
The main ways
Primary emissions are made in the following forms:
- Open (in public). In this case, the placement is carried out among an unlimited number of investors. The company publicly announces the upcoming event through an advertising campaign and registration of the prospectus.
- Closed. Such emission is called private. In this case, the company does not publicly announce its intentions. Placement in this case is carried out among a limited number of investors (up to 500) or for an amount not exceeding 50 thousand minimum wages.
Making deposits
In practice, credit issues are often used. It represents an increase in the mass of financial resources by the bank due to the formation of new deposits for customers who have received a loan from it. The creation of such an emission mechanism was due to the understanding by credit organizations of the fact that there is no need to keep excess reserves in safes. They can very well be turned into real finance. To do this, you need to agree with the borrowers that they can borrow funds as those persons who at one time deposited them in the accounts. Due to this, citizens with loans can acquire benefits, as for cash. To do this, the borrower must instruct the bank to pay them at the expense of the loan. Since deposits are suitable for settlements for purchases, they, in fact, are no different from cash.
Classification of deposits
In modern banks, deposits are provided:
- Opened by owners of savings.
- Created by a financial institution in the provision of borrowed funds.
The basis of the latter are excessive reserves. After several banking crises, a serious financial problem arose. Her decision was the formation of a nationwide reserve system. Its principles form the basis of the structure of the banking sector in many countries, including Russia. Such a system is based on the centralization of a certain share of the funds of commercial financial institutions in special funds. The right to dispose of them belongs to the Central Bank. It sets the standards for mandatory contributions to the reserve. They are determined in% of the total amount of funds held by a banking organization in various types of accounts.
