02-22-2009, 03:53 PM
Dears
One more thing, it is not the matter of available currency notes in a specific country or on the globe. It is not that simple. In a point of time, keeping other things constant, number of currency notes remain same. We all know that we get loans from banks at some rate. Banks gets loans from other banks and the Central Bank i.e. SBP. This interest rate plays a very pivotal role in modern days economies. To affect various parameters of economy, each Central Bank expands and contracts money supply in the economy through changes in interest rates. Other methods are open market operation (i.e. Central Bank sells and purchase bonds and securities with financial institutions to increase or decrease money supply), required reserve ratio (i.e. each commercial bank has to keep certain percentage of its deposits with Central Bank, so commercial bank cannot lend to borrowers from this reserve. By changing %age of this reserve ratio, Central Bank affects money supply) etc.
We all know if interest rate very low lets say 1%, burden of loan would be minimal and we can get more loan. As compared to this, if the interest rate is lets say 20% then we would have less loan because burden is huge.
So supply of currency notes remain their, but it is related to interest rate at which the banks would lend.
The whole modern economics revolves arround fluctuations in interest rates.
I hope it helps.
Regards
One more thing, it is not the matter of available currency notes in a specific country or on the globe. It is not that simple. In a point of time, keeping other things constant, number of currency notes remain same. We all know that we get loans from banks at some rate. Banks gets loans from other banks and the Central Bank i.e. SBP. This interest rate plays a very pivotal role in modern days economies. To affect various parameters of economy, each Central Bank expands and contracts money supply in the economy through changes in interest rates. Other methods are open market operation (i.e. Central Bank sells and purchase bonds and securities with financial institutions to increase or decrease money supply), required reserve ratio (i.e. each commercial bank has to keep certain percentage of its deposits with Central Bank, so commercial bank cannot lend to borrowers from this reserve. By changing %age of this reserve ratio, Central Bank affects money supply) etc.
We all know if interest rate very low lets say 1%, burden of loan would be minimal and we can get more loan. As compared to this, if the interest rate is lets say 20% then we would have less loan because burden is huge.
So supply of currency notes remain their, but it is related to interest rate at which the banks would lend.
The whole modern economics revolves arround fluctuations in interest rates.
I hope it helps.
Regards
