The following points highlight the top six objectives of credit control by central bank.
Some of the objectives are: 1. To Stabilise the Internal Price Level 2. To Stabilise the Rate of Foreign Exchange 3. To Stabilise the Money Market in the Country 4. To Control the Activities of Business Cycle and Others.
Credit Control Objective # 1. To Stabilise the Internal Price Level:
The important objective of credit control is to establish stability in the internal price-level. But this is possible only when if there is a proper adjustment between the demand and supply of credit.
If the supply of credit is less than the commercial requirements, i.e., demand, there is sure to be a decline in the price-level.
ADVERTISEMENTS:
On the contrary, if the supply of credit exceeds the commercial requirements, i.e., demand, the internal price-levels are bound to go up. Therefore, the Central Bank should try to bring about a proper adjustment between the supply of credit and the commercial requirements of the country.
Credit Control Objective # 2. To Stabilise the Rate of Foreign Exchange:
The second important objectives of credit control are to maintain stability in the foreign exchange rates. The instability in exchange rates can have harmful repercussions on the foreign trade of the country. Therefore, the Central Bank in those countries whose foreign trade is important should pay special attention to the elimination of violent fluctuations in foreign exchange rates through credit control policy.
Credit Control Objective # 3. To Stabilise the Money Market in the Country:
Next important point to consider is that the credit control policy of the Central Bank should aim at the stabilisation of the money market in the country. To achieve this point the Central Bank should neutralize seasonal variations in the demand for funds.
Credit Control Objective # 4. To Control the Activities of Business Cycle:
Business cycles are a common phenomenon of capitalist countries which lead to periodic fluctuations in production, prices and employment. Therefore, the credit control policy of the Central Bank should be to eliminate or at least to reduce the havoc caused by the business cycle. By varying the supply of credit, the Central Bank can, to some extent, control the operation of the business cycle.
Credit Control Objective # 5. Promotion of Economic Growth in Shortest Possible Period:
ADVERTISEMENTS:
It should be remembered that the chief objectives of the credit control policy in underdeveloped countries should be to promote economic growth within the shortest possible period. For economic growth backward countries suffer from financial crisis. Therefore, the Central Bank in those countries should try to solve the problem of financial crisis through planned expansion of bank credit.
Credit Control Objective # 6. To Meet Business Needs:
According to Burgess and eminent economist—that “Credit is needed to meet the requirements of trade and industry. As business expands large quantity of credit is needed and when business Contracts Less Credit is needed. Therefore it is the Central Bank only which can need the requirements of business by controlling credit.”