Functions and the Roles of the Central Bank

Act as commercial banks’ banker; Control and influence the country’s credit situation to ensure a stable economic growth rate First, supply currency; act as custodian of banks’ reserves and control value of Malaysian currency. The central bank is the sole issuer of currency in the country. Holding of country’s official external reserve are keep at the Central Bank because it has the responsible for the safe-keeping reserves to protect Ringgit Malaysia (RM).

To safeguard- the external value of ringgit Malaysia, central bank maintains the minimum external reserves amount to 80. 59% of money issued are allowed to reserve. Second, central bank also acts as government’s banker and financial adviser. Central bank has close relationship with the government and it has the responsibility to represent government in civil loan programs and manage government’s civil debts. Third, the central bank will ensure financial stability and strong financial structure.

Central bank will undertake the country’s economic intelligence and surveillance. Central bank need to ensure the money and credit are sufficiently elastic to meet the needs of domestic economy without straining the available resources. Fourth, act as commercial banks’ banker. Central bank give mandate to issue licences for banks. It also examines financial institutions to ensure that they can achieve high banking and professional standards. Firth, control and influence the country’s credit situation to ensure a stable economic growth rate.

Centre bank will analyse and assesses the development in the all sector economy in domestic and international and then control the country’s economy growth rate. It controls country’s finances through various instruments: statutory reserve requirement, minimum liquidity requirement, open-market operation, discount operation, interest rate control, credit control and lending guidelines and moral persuasion. These seven instruments is use to control the money supply in the country.

Lastly, the main function of central bank Bank’s goal is to achieve sustained growth path of the economy, high levels of employment, to maintain the stability of the purchasing power of the ringgit, to eliminate poverty and improve the living standards of the people in Malaysia and to achieve a reasonable balance of payments situation. To investigate the relationship of the financial status of the country and the happening of debt crisis A lots people know how to borrow the money, but many of them are unable to repay it. When someone or individuals was unable to repay their debts then they will face bankruptcy.

Many poor countries owe money to the western governments and international, and when the countries unable to repay the debt then debt crisis arise. The first debt crisis in history was born in USA. In the 1960s, US government had spent more money that they earned and end up with the decision to print more dollars. This decision had make the world’s stock of dollars fell in value. This news was deeply affecting the oil-producing countries, whose oil was priced in dollars. At that time, US government had to stop printing more dollars and started borrowed money from Western Government so they can hike their price.

The real trouble began when the interest rates plummeted, the banks will face with international financial crisis. The banks trying lending out the money fast, to stop the financial crisis, but finally it turned to the Third World. Whole economies were doing well; very less of people will try to borrow money. At this time banks lend out their credits without much thought about the debtors will able to repay it or not. Third World countries, for them, are pleased to be at a very low interest rate – below the rate of inflation. In the mid-1970s, the West encourages Third War Countries to grow cash crops.

But this idea was not working at all because too many countries were producing the same crops, and causes the prices fell. On the same time, the interest rate rose, pushed further by an increase in US interest rate. Third World countries were earning less, so they had to borrow money just to pay for the interest. During the year 2002 to 2008, globalization of finance cause Europe debt crisis. Easy credit conditions that lead to high-risk lending and borrowing practices cause Europe to suffer debt crisis. Moreover, the global financial crisis during the 2007 to 2012 period cause Europe debt crisis.

The international trade was imbalances too. Besides, the rapid increases in valuations of real property such as shopping lots, houses until they reach an unsustainable level and then suddenly decline is one of the causes too. In the year 2008 to 2012, the global recession also affect Europe economy. The choices of fiscal policy that affect government revenues and expenses are another cause of Europe debt crisis. The nations assume private debt burdens and socializing losses, so they trying to bail out troubled banking industries and private bondholders. The approaches they used cause Europe debt crisis.