Functions, role and boundaries of credit

Basic loan functions:

▪ distributive (redistributive). It is assumed that various forms of social wealth will be transferred from one entity to another or a secondary movement (redistribution) of previously received benefits.

Lender's reserve capital - the money received by him, temporarily not used in the circulation, and finished products that have not found their buyer.

▪ emission. Bills of exchange, as means of payment, have boundaries - they are used in a circle of entrepreneurs connected with each other. Removal of these restrictions by discounting the bill by the bank and replacing it with a bank obligation - a banknote. => Commercial credit causes the emergence of a new means of payment - bank money. Thanks to banknotes, the issue of money has acquired the necessary elasticity, the ability to adapt to the rapidly changing needs of household turnover. The emergence of credit money led to a decrease in the mass of metallic money. Now the Central Bank and the entire banking system issue money on a credit basis. There is a gradual withdrawal of money from circulation. Replacement of cash with non-cash payments, checks, credit cards => often, instead of the emission function, the function of replacing actual money with credit transactions is mentioned.

The role of credit in the development of the economy ( Denis Shevchuk):

▪ ensuring the continuity of capital circulation - through the regular sale of finished goods, timely acquisition of raw materials, materials, renewal of fixed capital.

▪ acceleration of the concentration and centralization of capital is a necessary condition for economic growth and stable development, and allows expanding the boundaries of individual accumulation.

Centralization of capital - the union of many, often heterogeneous capitals in one company.

Rational organization of monetary circulation is achieved:

1.Setting off claims made in the process of cashless payments.

2. involvement in the economic turnover of temporarily free funds of entrepreneurs and savings of the population.

3.creation and use of various means of payment.

Credit limits.

Distinguish the boundaries of commercial and bank credit.

commercial borders. Determined by the purposes, directions of its use, timing of provision, size.

banking borders. Depends on the bank’s resource base (liabilities); the size of the loan provided to one client is limited (so that if he does not repay the loan, the bank can still operate); boundaries are determined by the dynamics of production and circulation.

Author: Shevchuk D.A.

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