Variable Cash Reserve Ratio in Underdeveloped Countries
1. Introduction The central bank of a country has the responsibility of controlling the volume and direction of credit in the country. Bank credit has become these days an important constituent of the money supply in the country. The volume and direction of bank credit has, therefore, an important bearing on the level of economic activity. Excessive credit will tend to generate inflationary pressures in the economy, while deficiency of credit supply may tend to cause depression or deflation. Lack of the availability of cheap credit may also hinder economic growth and development. At times of depression, there is a need to expand credit and at times of boom there is need to contract credit. For promoting economic development, expansion of cheap credit (credit at low rates of interest) is desirable. In order to prevent booms and depressions (i.e., to maintain economic stability) and to promote economic growth