There are different policies and systems which are playing role in it. Mainly they all can be classified into the three instruments to regulate the money supply. They are Open- Market Operations, Discount rates, and reserve requirements combined playing role in stabilizing the economy. However, they all are considered the best money lender in toa Payoh too.
Role Of Open Market Operations
The first instrument “Open market operations” it is depending on the buying or selling of government securities. For example, generally, a central bank affects the money supply and interest rate too. Whenever any person buys government securities they need to make the payment with a check. That is drawn on itself and this action creates the money in the form of additional deposits. It is from the sale of securities by commercial banks.
In the next step, the cash is deposited to the cash reserves again to the commercial banks. Thus it is helping banks to increase their lending capacity and profit too.
It is also a good one for the second party too. If the demand for the leading money by the bank is going to increase then the interest rate is also going to reduce by the bank and also to the last person. This is how the second tool is also playing an essential role in it.
Role Of Discount Rate
When the demand is going to increase for lending money. Simulatenoauly they can get more money with the reduced rate. Behind this government is believing in reducing the rate thus, it will be easy for the person to take a loan for the business. Simultaneously the rate of interest for the money lender is also get reduced.
Role Of Reserve Requirement
It is also a law of commercial banks. Because the bank also needs to have some amount of cash with themselves. So, that they can also give to their customers too. This is why there is especially a law that a specific percentage a bank has to take by itself. And this amount will be the non-interest-bearing reserve for them.
This is how money lending stabilizes the economy. All these systems promote the business or entrepreneur to invest in their companies. Because if their business grows then it will not only grow the economy but also boost it. All three are different pillars which are having their importance and also connective values with each other.