Explain that ‘The central bank is the guardian of the money market’ – Explain The central bank is the main bank of a country. It is the sole body responsible for managing and controlling the country’s money market. Therefore, this bank is considered as the head and guardian of the money market.
The reasons why the central bank is called the custodian of the money market are mentioned below:
- The central bank adopts and formulates action plans for the formation, operation and control of a well-organized money market;
- Assists in the establishment of various banks and financial institutions related to the money market;
- Provides advice, guidance, counseling and assistance to various banks and financial institutions related to this market;
- Controls the supply of credit in the market with a view to maintaining the value of the currency and providing equality between economic functions;
- Determines the foreign exchange rate in order to preserve and stabilize the domestic currency abroad;
- Provides important economic advice to the government in order to maintain the stability of the currency market;
- In order to keep the economy afloat, the central bank enacts laws at various times, forcing the listed banks to comply with them;
- Performs various functions at home and abroad as a representative of the government and other commercial banks;
- The central bank maintains a balance between inflation and contraction by controlling the debt of listed commercial banks;
- In the money market, member banks and financial institutions act as a last resort for loans in times of financial crisis;
- The central bank collects various information about the money market and provides it to different parties in the money market.
In conclusion, the central bank has a considerable role to play in all the activities of the money market. That is why the central bank is called the custodian of the money market.
Dr. S. According to N Sen, “the central bank is the leader of the banking community, the king and the sun everything. Banking reigns as a leader and gives light and energy to the world like the sun (money and money market).”