Which of the following is not a means of controlling credit by the Central Bank?
Answer Details
Clearing inter-bank indebtedness is not a means of controlling credit by the Central Bank. Clearing inter-bank indebtedness is a system that allows banks to settle payments between themselves. When one bank owes another bank money, they can use the clearing system to transfer funds from one bank account to another. While the central bank may oversee the clearing system, it is not a direct means of controlling credit.
The other options listed are all means of controlling credit by the Central Bank.
- Fixing the bank rate refers to the interest rate that the central bank sets for lending money to other banks, which can influence the interest rates that other banks charge customers.
- Open market operations refer to the buying and selling of government securities by the central bank to influence the money supply and credit conditions.
- Special deposits refer to the requirement by the central bank that commercial banks deposit a portion of their funds with the central bank, thereby reducing the amount of money they have available for lending.
- Cash liquidity ratio refers to the percentage of cash reserves that banks are required to hold as a proportion of their deposits, which restricts the amount of money they have available for lending.