Banking. Passive and active operations of the Central Bank of the Russian Federation (lecture notes)

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Banking. Passive and active operations of the Central Bank of the Russian Federation (lecture notes)

Lecture notes, cheat sheets

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Passive and active operations of the Central Bank of the Russian Federation

Passive Operations

The main source of central bank resources in most countries is the issue of banknotes (from 54 to 85% of all liabilities). At the present stage, the issue of banknotes is completely fiduciary, that is, it is not backed by gold. The gold backing of banknotes has been abolished, although some countries formally continue to have laws that limit the limits of fiduciary issuance. The official gold content of monetary units has been abolished everywhere.

The modern mechanism for issuing banknotes is based on lending to commercial banks, the state and the increase in gold and foreign exchange reserves. The mechanism of issue predetermines the nature of the banknote credit security. The issue of banknotes when lending to banks is secured by bills of exchange and other bank obligations; when lending to the state - with state long-term obligations, and when buying gold and foreign currency - with gold and foreign currency, respectively. In other words, the assets of the central bank serve as collateral for the issue of banknotes. In this, in particular, the relationship between passive and active operations of the bank is manifested. The size of the passive operation of the central bank "issue of banknotes" depends on its active operations: loans to banks, the Treasury (Ministry of Finance), the purchase of foreign currency and gold. In this sense, we can say that the listed active operations of the central bank are primary in relation to passive ones.

This does not mean, however, that any loan from the central bank to the credit system or the state is associated with a new issue of banknotes. Such loans can be credited to the accounts of commercial banks and the treasury opened with the central bank, in which case there is not a banknote, but a deposit issue of the central bank. The sources of the central bank's resources are the deposits of commercial banks and their required reserves credited to special accounts, as well as the deposits of the treasury (state budget funds). Typically, no more than 4% of the liability is accounted for by the bank's own capital.

Active Operations

The main active operations of central banks include: accounting and court operations; bank investments; transactions with gold and foreign currency.

Accounting and loan operations presented in two types:

▪ loans to commercial banks and the state secured by commercial bills (accepted by reputable banks), treasury bills, government bonds and other securities;

▪ accounting operations - purchase by the central bank of bills from the state and banks. The purchase of bills from commercial banks is called rediscounting, since this involves secondary accounting, a secondary purchase of bills that commercial banks bought from their clients. The difference between the amount that the central bank pays to a commercial bank when purchasing a bill of exchange, and the amount that will be received from the debtor on the bill of exchange when it matures, forms the bank’s income (Shevchuk D.A. Banking operations. - Rostov-on-Don: Phoenix , 2006).

The rate at which the central bank lends to commercial banks and rediscounts their bills is called the official discount rate, or the central bank discount rate.

Bank investments is the purchase of securities by the bank. Central bank investments consist of investments in government securities. The purchase by the central bank of government bonds in most industrialized countries is the main and even the only form of lending to the government. Direct lending to the state, i.e., the provision of a bank loan, is practically absent in these countries (for example, in the USA, Canada, Japan, Great Britain, Switzerland, Sweden) or is limited by law (in Germany, France, the Netherlands). It should be noted that only a small part of government securities is in the portfolio of the central bank. Accordingly, the main creditors of the state are not central, but commercial banks and other financial and credit institutions, companies and the population.

An important, and often the main purpose of the purchase of government securities by the central bank is to regulate the liquidity of the banking system and manage public debt in the course of monetary policy.

Author: Shevchuk D.A.

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