It was already noted above that it would be a mistake to look at credit expansion only as a way government intervention to the market. Uncovered instruments are not born as a public policy tool specifically aimed at high prices, high nominal rates wages, lowering the market interest rate and canceling debts. They appear in the normal course of development of banking. When the bankers, whose demand deposit notes were perceived by the public as a substitute for money, began to lend a portion of the funds deposited with them, they thought of nothing else but their business. They believed that there would be little harm in not keeping the full equivalent of the issued receipts as cash reserves in their safes. They were confident that they would always be able to fulfill their obligations and redeem all issued receipts without delay, even if they lent part of the deposits at interest. Banknotes become uncoated instruments in a free market economy. The progenitor of credit expansion was the banker, not the government.
But today credit expansion is exclusively a government practice. Although private banks and bankers borrow important place in the issuance of uncoated instruments, their role is purely auxiliary and concerns only technical details. States alone control the development of events. They have achieved complete dominance in all matters relating to the extent of fiduciary credit. While the scale of credit expansion that private banks and bankers are able to organize is strictly limited, states are aimed at the maximum possible scope of credit expansion. Credit expansion is the main weapon of the state in the fight against the market economy. In his hands it is a magic wand designed to miraculously remove the scarcity of capital goods, reduce or completely eliminate the rate of interest, finance lavish government spending, expropriate capitalists, stimulate perpetual boom and general prosperity.
The inevitable consequences of credit expansion are demonstrated in the theory of production cycles. Even those economists who still refuse to admit the correctness of the monetary or fiduciary credit theory of cyclical fluctuations of production have never dared to question the cogency and irrefutability of what this theory asserts regarding the inevitable consequences of credit expansion. These economists must and do recognize that a surge is invariably due to credit expansion, that it cannot arise and continue without credit expansion, and that it turns into a depression when credit expansion ceases. In fact, their explanation of the production cycle amounts to the assertion that the sharp rise is initially generated not by credit expansion, but by other factors. They say that credit expansion, even in their opinion a necessary element of the general boom, is not the result of policies specifically aimed at low interest rates and the encouragement of additional investment for which the necessary capital goods are in short supply. It is something that miraculously always arises without active intervention on the part of the authorities, wherever these other factors begin to operate.
It is obvious that these economists contradict themselves when they oppose plans to eliminate fluctuations in production by refraining from credit expansion. Proponents of a naive inflationist view of history are consistent when, from their, of course, extremely erroneous and contradictory dogmas, they conclude that credit expansion is an economic panacea. But those who do not deny that credit expansion is the cause of the boom, i.e. a necessary condition for depression, contradict their own doctrine by fighting proposals to curb credit expansion. Representatives of both the state and powerful pressure groups, and the champions of dogmatic unorthodoxy who dominate university economics departments, agree that we should try to prevent the recurrence of depressions and that achieving this goal requires preventing booms. They cannot make a logical argument against proposals to refrain from policies that encourage credit expansion. But they are stubborn and do not want to listen to anything like that. They vehemently denounce plans to prevent credit expansion as evil schemes that will perpetuate the depression. Their position clearly demonstrates the truth of the statement that production cycles are the result of policies deliberately aimed at lowering the rate of interest and creating artificial booms.
It is no secret that today measures aimed at reducing interest rates are widely considered highly desirable, and credit expansion is looked upon as an effective means of achieving this goal. It is this prejudice that forces all states to fight the gold standard. All political parties and pressure groups are firmly committed to the policy of easy money[If the bank does not extend fiduciary credit by issuing additional tools unbacked (either in the form of notes or deposited money), it cannot cause a boom even if it reduces the amount of interest charged below the free market rate. He simply makes a gift to debtors. The conclusion to be drawn from the theory of production cycles by those who wish to prevent the recurrence of booms and subsequent depressions is not that banks should not reduce the interest rate, but that they should refrain from credit expansion. Of course, credit expansion inevitably leads to a temporary downward movement in market interest rates. Professor Haberler (Haberler G. Prosperity and Depression. M.: Publishing House of Foreign Literature, 1960. P. 9293) absolutely failed to realize this point, which is of paramount importance, and, thus, his critical remarks are meaningless. ].
The purpose of credit expansion is to promote the interests of some groups of the population at the expense of others. This is, of course, the maximum that interventionism can achieve when it does not harm the interests of all groups. However, while making the community as a whole poorer, it is still able to enrich some sections. Exactly which groups fall into the latter category depends on the circumstances in each particular case.
The idea that gave rise to what is called quality credit control is to distribute additional credit in such a way as to concentrate the supposed benefits of credit expansion on certain groups and deny them to all other groups. Loans, they say, should not go to the stock market and should not sharply increase stock prices. They must be of real benefit production activities manufacturing industries, mining, real trade and, above all, agriculture. Other proponents of good credit control want to prevent additional credit from being used to invest in permanent capital and thus immobilize it. Instead, they should be used to produce marketable goods. Under these plans, authorities would give banks specific instructions on what types of loans they should make and what they should not make.
However, all these projects are useless. Discrimination in the issuance of loans is not a full replacement for prohibitions on credit expansion, the only means that can actually prevent the growth of stock prices. stock market and expanding investment in permanent capital. The way that additional quantity the loan finds its way to the loan market is of secondary importance. All that matters is that there is an influx of newly created credit. If banks make more loans to farmers, farmers are able to repay loans from other sources and pay cash for their purchases. If they provide more loans manufacturing enterprises to replenish working capital, they release funds previously allocated for this purpose. In any case, they create an abundance of free money, for which their owners try to find the most profitable areas of investment. Very quickly these tools find loopholes in stock exchange or to fixed assets. The idea that it is possible to carry out credit expansion without increasing prices securities and expansion of investment in fixed assets is absurd.
Until recently, the typical course of events in the course of credit expansion was determined by two facts: that it was a credit expansion under the gold standard, and that it was not the result of the concerted actions of many national governments and central banks whose behavior was directed by those governments. The significance of the first fact is that governments were not prepared to abolish the convertibility of their country's banknotes according to a rigidly fixed parity. The second fact led to quantitative diversity in the scale of credit expansion. Some countries were ahead of others and their banks faced the danger of an external drain on their gold and foreign currency reserves. To maintain their solvency, these banks were forced to resort to drastic credit restrictions. Thus, they created panic and caused depression in domestic market. Very soon the panic spread to other countries. Business people in these countries frightenedly increased their borrowing in order to protect their liquid funds from any possible contingencies. It was this increased demand for new loans that forced the monetary authorities of their own countries, already alarmed by the crisis in the first country, to also resort to contraction. Thus, within a few days or weeks, depression became an international phenomenon.
The devaluation policy changed this typical sequence of events somewhat. Under the threat of external leakage, monetary authorities do not always resort to limiting credit and increasing interest rates in the central bank system.
They are devaluing. However, devaluation does not solve all problems. If the state is not concerned about the problem of rising foreign exchange rates, then it can continue to cling to credit expansion for some time. But one day the rush demand will destroy monetary system. On the other hand, if the authorities want to avoid the need to carry out devaluations again and again at an accelerating pace, then they must organize an internal credit policy in such a way as not to outstrip in credit expansion those countries with which they wish to maintain parity of their currency.
Many economists take it for granted that government attempts to expand credit result in an almost regular cycle of booming trade and subsequent depression. They believe that the consequences of credit expansion in the future will not differ from those observed since the end of the 18th century. in Great Britain and from the middle of the 19th century. in Western and Central Europe and North America. But we can ask: have the circumstances not changed? The teachings of the monetary theory of production cycles are now so well known even outside the narrow circle of economists that the naive optimism that once inspired entrepreneurs during boom periods has given way to a certain skepticism. It is possible that business people will respond to credit expansion differently in the future than they have in the past. They may avoid using easy money to expand their operations because they will be mindful of the inevitable end of the boom. Judging by some signs, this process is already underway. However, it is too early to draw final conclusions.
In the other direction monetary theory production cycles already have a certain influence on the course of events. Although no official, whether he works in the Ministry of Finance or in the Central Bank, or teaches at an unorthodox university, is ready to admit it, public opinion by and large no longer denies the two main provisions of the theory of fiduciary credit: namely, that the cause of the depression is the previous boom and that this boom is generated by credit expansion. Aware of these facts, the financial press raises alarm as soon as the first signs of a boom appear. After this, even the authorities begin to talk about the need to prevent further increases in prices and profits and actually begin to restrict credit. The boom quickly fades and a recession begins. The result has been that cycle lengths have shortened significantly in recent decades. The alternation of booms and economic downturns still continued, but the phases became shorter and followed each other more often. This is very different from William Stanley Jevons' classic 10.5-year yield cycle. And finally, most importantly, when the boom ends earlier, fewer erroneous investments are made and, as a result, the subsequent depression is also milder.
Ludwig Von Mises" Human activity. Treatise on economic theory"
Monetary policy, which implies the activation of credit transactions and banking financial transactions in order to increase business profitability.
Expansion is translated from Latin as expansion. It is the expansion of the sphere of influence that is the defining element of the process of credit expansion.
Process Features
Credit expansion is carried out using equity capital and borrowed funds. In the first case, finances are directed to business lending, financial institutions expanding the range of banking products. In the second case, debt instruments are issued.Expansion rates may vary. Thus, with moderate activation, they follow the economic growth of the state or the development of a single economic unit. With accelerated expansion, the activation of monetary policy outpaces the rate of economic growth.
Expansion can be carried out at the micro level, for one economic entity, and at the macro level, within the state.
Types of credit expansion
A distinction is made between external and internal credit expansion. The external ones are characterized by:- private and government deposits to foreign markets;
- issuance of export loans;
- dumping, currency and commodity;
- financial assistance to third world countries;
- insurance against certain types of risk (currency, credit, portfolio) of export operations carried out by business.
During internal expansion, stocks and bonds are bought on the open market, currencies from private banking organizations, restrictions on lending volumes are lifted and other actions aimed at stimulating the state’s economy.
Credit expansion is not always able to solve the assigned tasks, since it can bring both positive and negative results. Lack of benefit or even Negative consequences occur in the following cases:
- the source of expansion is not real savings, but the issue of securities without collateral;
- activation of monetary policy is carried out through the issue of bonds, and not through the expansion of lending services - a more costly but less risky process;
- expansion proceeds uncontrollably, there is only a statement of the result, positive or negative;
- To intensify the process, borrowed funds are attracted.
Credit expansion — Distribution, intensive expansion of credit transactions and bank operations in order to make a profit. (Financial and credit encyclopedic dictionary / Under the general editorship of A.G. Gryaznova.-M., 2002)
The main goal of credit expansion is the struggle for the most profitable markets, sources of raw materials, and areas for applying capital. (Financial and credit encyclopedic dictionary / Under the general editorship of A.G. Gryaznova.-M., 2002)
Credit expansion is carried out within the country by influencing the economy with the main instruments of the central bank's monetary policy. Credit expansion includes a decrease in the central bank discount rate (refinancing rate), a decrease in interest rates on Lombard loans, a change in the required reserve ratios deposited in central bank(or their abolition), the purchase of securities on the open market, the expansion of purchases of foreign currency from commercial banks, the reduction of interest rates on these operations, the abolition of quantitative restrictions on loans. Creating favorable conditions for commercial banks expands investment opportunities in the economy and contributes to flooding financial market cheap means of payment. However, credit expansion does not always lead to economic recovery. In case of unfavorable conditions commercial banks often do not increase their investments in real sector economy, but use them on the securities market to purchase financial assets, for example, government securities. In this regard, a stimulating factor in the state’s activities to attract additional credit resources to the economy is a decrease in the yield on government securities. (Modern financial and credit dictionary / Under the general editorship of M.G. Lapusta, P.S. Nikolsky.-M., 2002)
Credit expansion and its boundaries
IN modern economy credit was once again at the center of events. The financial and economic crisis revealed the need for more in-depth research into the role of credit and its impact on the economic environment. Society turned out to be even more interested not only in overcoming economic downturn, in getting out of a state of depression, but also in finding an opportunity to avoid previous misconceptions and mistakes in monetary regulation. The issue of new economic structures, measures to ensure stable and sustainable development, including through credit instruments, has become the most popular both scientifically and practically.
In theoretical terms, credit expansion, known to the world for decades, turned out to be not an ordinary, long-explained phenomenon, but a process that demonstrates more and more new aspects of its development. Much that seemed quite clear and understandable raised serious doubts and required further clarification.
For modern Russian financial and banking science, this problem has become doubly acute. It so happened that credit expansion was more associated with monopolistic tendencies and was readily perceived as a phenomenon characteristic of developed economies, with their characteristic excess of capital seeking more profitable use. However, it turned out that credit expansion occurs in both developed and developing countries, and its consequences can be very diverse. At the same time, it not only brings troubles, causes crises of production and circulation, but is also capable of providing society with ample opportunities for economic development.
The question, therefore, is not how to combat credit expansion, but how to correctly direct the development of the monetary sphere, which creates imbalances and aggravates contradictions.
Unfortunately, the modern world economics cannot yet answer such questions. It is possible that this is due to the fact that in general credit as an economic relationship was not given due attention; explanations in the cyclical development of the economy were more related to money in isolation from credit - a special phenomenon that has a specific impact on both production and and for exchange and money turnover generally. It seems that the very content of credit expansion, due to the incompleteness of the study of credit, turned out to be far from being disclosed to the proper extent.
As will be shown later, credit expansion is almost universally associated exclusively with the expansion of credit. Such an “expansive” approach to explaining credit expansion, for all its positive significance, turns out to be limited and reduces the problem to the narrowing of lending and the role of credit in social development. This study makes an attempt to present credit expansion not only from purely quantitative parameters, but also from the qualitative side, from the development of credit due to objective economic processes.
Linking credit expansion with the expansion of lending, the author sees in it only a fragment of its manifestation. The expansion of credit, characterizing credit expansion, may reflect the process of its wider use in conditions of underdevelopment of existing credit practices, the process of “satisfying hunger” through the use of credit resources by economic entities experiencing an urgent need for borrowed capital. Thus, the expansion of lending occurs not against the backdrop of an excess of loan capital, but due to significant unsatisfied demand for additional credit resources. The expansion of lending under these conditions does not express the process of credit development, but only the replenishment of the economy’s lack of financial resources.
In general, it seems that the issues of the essence of credit expansion and the forms of its manifestation have not been adequately analyzed. From a theoretical point of view, questions remain unclear: what is considered credit expansion? when does it occur? When does it lead to positive or negative impacts?
In modern science and practice, the concept of “expansion” has become widespread.
According to the Big Soviet encyclopedia The word "expansion" comes from the Latin "expansio" and means expansion, spread. From an economic point of view, it is believed that expansion is an expansion of the sphere economic influence, economic action of a country, concern, firm, political associations, groups, states through ousting other countries, firms, capturing markets, acquiring resource sources by economic methods (for example, export of capital).
In the literature about monetary relations credit expansion is interpreted as a type of economic expansion, and its content is also associated with expansion. The origins of this approach can be found in the most prominent representative of the Austrian economic school Ludwig von Mises, who believed that credit expansion and credit expansion are synonymous. Subsequently, the definition of credit expansion as “intensive expansion of credit transactions and bank operations” passed into modern reference literature.
Of course, credit expansion is not only a quantitative process of expanding the scale of lending, but also, according to the characteristics of the International Monetary Fund, “a change in the money supply in circulation,” “a multiple increase in the credit supply as the credit accounts in the chain of banks."* From an institutional point of view, credit expansion is not only a phenomenon affecting the macro level economic relations, but also a process relating to the activities of individual banks. It can be assumed that credit expansion is manifested in the activities of not only the lender, but also the borrower, who experiences the need for a more capacious attraction of loan capital.
In modern practice, credit expansion noticeably manifests itself in the expansion of subjects, objects and terms of lending, loan collateral, attracted resources, loan fees, lending benefits, export of loan capital, export loans and the geography of loan products.
Ten years ago, lending to the population was considered an exotic phenomenon in Russian banking practice, since commercial banks preferred to deal with legal entities. Gradually, the contingent of borrowers changed - increasingly, pensioners, people over 70 years of age, as well as young people, “married couples” - collective borrowers - became the subjects of lending. If in beginning of XXI century, loans to individuals accounted for 1-3% of bank credit investments, then by 2011 the share of loans to the population in loan portfolio reached more than 20%. Of course, this process will continue further.
A similar picture is observed with the expansion of lending facilities. With the development of Russian banking practice more and more material reserves are falling into the orbit of credit and production costs. Gradually, banks, both in international and domestic practice, moved from lending to a private object to an aggregate object, from lending inventories to lending costs, the recoupment of which only in the future could guarantee the repayment of the loan. It is known that in Western countries some banks and special companies practice issuing venture loans.
In practice, credit expansion manifests itself in the form of the development of lending maturity. National statistics state that the horizon of medium- and long-term loans is gradually expanding.
Credit expansion is also noticeable in the area of expanding the scope of loan collateral. In modern practice, loans are secured not only by collateral material assets and property, but also a wide variety of securities financial instruments(shares, bonds, bills, certificates, insurance policies, etc.). In some cases, loan repayment is secured not only material object lending and various financial obligations, but also the personal property of the borrower.
Unfortunately, in modern practice, in the collateral orbit, various credit derivatives are beginning to acquire an increasingly large scale, their volume significantly exceeding the volume of gross domestic product. “Inflated” security and associated “bubbles,” as is known, have become a source of speculation, “overheating” of the economy and, as a consequence, the cause of the modern financial and economic crisis.
Credit expansion can be fueled by an expansion of the resource base of banks. Usually in this case we can talk about both internal and external sources. Internal sources The expansion of the resource base of Russian commercial banks turned out to be significantly less than the credit needs demonstrated by enterprises and organizations. By taking advantage of external sources (loans from foreign banks and companies), resident banks were able to significantly increase their loan investments; expansion of credit due to external borrowings received additional "breath".
Expansion of lending economic entities can also be carried out through the interest rate policy of banks, stimulating the demand for credit (reducing fees for using a loan) and the influx of deposits for their subsequent redistribution on a credit basis. It is known that low interest rate on loans for the purchase of real estate in the USA has led to widespread development mortgage loans, however, as it turned out, without a proper assessment of the borrowers' creditworthiness, and in the future - to significant losses of credit institutions.
Credit expansion may be accompanied by credit liberalization. A lower “cut-off line” of the borrower and a more liberal approach to assessing his creditworthiness cause an increase in the scale of lending, and in case of unfavorable developments, events turn into ruin for both the lender and the borrower. According to A. Swiston, adherence to lending standards has an impact on the business cycle. A credit tightening of 20% reduces business activity by 3/4% within one year and by 1% after two years. Other authors come to the same conclusions, noting a drop in the level of GDP with a general reduction in credit volumes.
In external economic ties credit expansion manifests itself in the form of the export of loan capital and the expansion of export credits. Fueled by excess capital within the country, credit expansion overcomes national boundaries, allows lenders to conquer new frontiers and markets, and increases credit supply within new geographical boundaries.
For developing countries, credit expansion can occur within national borders, spreading to areas less covered banking products and services, but feel the need to develop production and circulation, credit and settlement services. Credit expansion in similar situation allows you to develop new territories, promote the development of individual industries and regional economy, and the socio-economic development of the country as a whole.
In all these cases, credit expansion manifests itself not as a simple expansion of the scope of lending, but as the penetration of credit into new areas of human activity, intensive, large-scale development of credit, accompanied by an increase in credit supply and an expansion in the scope of loans.
Expansion of lending is one of the moments of credit expansion. It is known, for example, that in conditions of economic depression in the post-crisis economy there is some revival of lending, a return of credit to its previous pre-crisis positions. It can be said that following the economic recovery, the expansion of lending reflects the recovery credit relations after their crisis.
Credit expansion begins to manifest itself in full after the depression, at the stage of recovery, during the period of accumulation of loan capital, seeking the sphere of monetary support for the noticeably expanding business activity of economic entities.
What is commonly called a credit boom can hardly be called credit expansion. A credit boom is, of course, an expansion of lending, but in its characteristics, target orientation and economic consequences it differs significantly from credit expansion. It is rather a tactical measure, an operational step in the development of credit services. As for credit expansion, this is, in a certain sense, a strategic maneuver of the creditor that affects its long-term plans. Moreover, credit expansion has broader goals. As already noted, credit expansion is aimed at expanding the sphere of influence, mastering new opportunities, markets, and gaining new positions, including in a competitive environment. The credit boom has more local goals - to keep up with others and, taking advantage of the current situation, to make big profits.
An important difference is that credit expansion, as already mentioned, expresses a process of constant development. The credit boom as an expansion of lending is just an episode in credit activities. It is more often associated with the massive, frantic entry of banks into credit market, reflects a “herd” reflex, reminiscent of a pre-holiday sale, sales, rush of buyers wanting to purchase goods at a lower price. Research by foreign authors indicates that the average duration of a credit boom ranges from two to seven years. This circumstance allowed them to define a credit boom “as an episode in which the growth of credit to the private sector exceeds the normal expansion of credit over a period of time.” economic cycle". In any case, it is quite clear that credit expansion expresses a long-term trend in the expansion of credit, while the credit boom is only an episodic process covering a relatively short historical period in credit activity.
When comparing credit expansion and credit boom, one cannot help but pay attention to the fact that credit expansion manifests itself both in the domestic and foreign markets, while the credit boom is associated primarily with the internal movement of loan capital.
Research shows that in developing countries, credit booms contribute more to consumer spending and less to gross domestic product growth.
It should be noted that credit expansion, which we consider as a process of expansion and development of credit, contributes to economic growth. Carried out within the framework of real savings, it increases investment resources commodity producers, ensures the continuity of the reproduction process, speeds it up, and contributes to saving social costs. It is no coincidence that the cyclical nature of the economy and its rise are closely combined with the expansion of lending to the needs of the economy.
The productivity of credit expansion must, however, be linked to the boundaries of credit.
Unfortunately, this issue, being even more complex, has also not been fully studied in both the world and domestic economic literature. It remains unclear not only what should be considered the credit limit, but also what turns credit expansion into a negative or positive process. Considering this problem at the macro and micro levels, the author connects its solution with both quantitative and qualitative, with both internal and external boundaries of credit, with its expansion both through real savings and on the basis of fiduciary expansion, both due to internal and due to external sources. The analysis shows that adherence to these boundaries of credit expansion can determine the direction of its positive rather than destructive impact on economic growth.
At a practical level, the limit of credit is often considered to be the gross domestic product, the production of which creates the material prerequisites for the return of the value lent. In practice, however, the size of the loan is often greater than the gross domestic product created. This situation is quite understandable, since credit can repeatedly mediate various parts of production and circulation and, therefore, in its volume exceed the size of the produced product.
Practice shows that the interpretation of the volume of resources and/or their growth rate does not make it possible to use this indicator as an expression of compliance with credit limits. It is also important to take into account that the size of the product produced does not mean that those who borrowed will have enough opportunities to repay it. It is not at all a fact that if the corresponding gross product is produced, borrowers will be able to return what they originally borrowed.
More productive information about compliance with credit boundaries is the savings created by society. Savings as a quantitative limit of credit are equally important both for expressing the limit of satisfaction of the borrower's needs for the use of additional capital, and for its provision by the lender, both for issuing a loan and for repaying it.
It would also be useful to use the indicators “limit on the ratio”, “loan to collateral”, “limits on the use of borrowed capital in order to increase profits” and “capital buffers for certain sectors of the economy”. In this regard, it is important to restore in full the banking statistics on lending to economic sectors. It would be useful in the pre-crisis period, when emerging imbalances are detected, to set limits on lending to the economy for large banks. From the perspective of improving credit management, non-economic factors, such as competition, are of no small importance. State support, the development of a network of credit institutions, the regional segment of the banking sector and some other factors can be very useful for the development of lending.
Taking into account the huge need of economic entities to borrow loan capital, it seems advisable to maintain high rates growth of credit investments in the national economy, paying increased attention to investment bank lending, including syndicated lending, project financing, such new types of loans as mezzanine and hybrid financing, as well as the development of modern investment bank loans (structured, index-linked long-term loans, investment loans with embedded derivatives). In the process of regulating its policy, it is reasonable for the state to formulate a national banking policy, which would more clearly define the priorities of industry lending and its provision with credit resources, modernization sectoral structure production, ensuring a departure from the mono-industry model of the economy. It is important to pay attention not only to the structure of credit investments, but also to the need to eliminate imbalances in lending to regions, legal and individuals, loan terms.
It also seems that in the process of improving credit management, it would be advisable to monitor and evaluate the dynamics of lending using a wider range of indicators characterizing the effectiveness of loan investments, including based on such indicators as the speed of loan turnover in comparison with turnover working capital, its profitability, cost, use in related sectors of the economy, labor productivity in the field of lending. Very useful information for assessing lending performance can be the share of unsecured, extended loans in the total volume of loans provided, the ratio of the size of assets and off-balance sheet liabilities to Tier 1 equity capital, and the ratio between loans and deposits of the banking sector.
In general, these indicators can be used bank of issue to strengthen macroeconomic regulation.
credit expansion bank foreign exchange
Literature
- 1. The first explanatory Big Encyclopedic Dictionary. -SPb.: Norit; M: ND "Ripol Classic", 2006. - P. 2144.
- 2. Mises, Ludwig von. Human activity: a treatise on economic theory / Transl. from 3rd revision English ed. A.V. Kurzeva. -Chelyabinsk: Socium, 2005 - P. 405.
- 3. Financial and credit encyclopedic dictionary / Under the general. ed. A.G. Gryaznova. - M: Finance and Statistics, 2002. -S. 1168.
- 4. Fedorov B.G. New English-Russian banking and economic dictionary. - St. Petersburg, 2006. - P. 221.
- 5. Swiston A. A US Financial Conditions Jndex: Putting Credit where Credit is Due // IMF Working Paper. - 2008. - June.
- 6. Bayouni T., Melander O. Credit Mattars: Empirical Evidence on US Macro-Financid Linkages // IMF, 2008.
- 7. Enrigue G. Mendoza, Marco E. Terrenes. An Anatomy of Credit Booms: Evolution from Marco Aggregates and Firm Level Data. - (IMF), 2008. - P. 5, 7.
From 1991 to early 1995, the Central Bank of the Russian Federation pursued a policy of credit restriction. The refinancing rate was increased from 20% as of January 1, 1991 to 210% as of October 15, 1993. In the period from April 29, 1994 to August 24, 1994, the rate was gradually reduced to 130%, but already from October 12, 1994, the Bank of Russia again raised it to 170%, and soon to 180% and 200% per annum (as of on 11/17/94 and 01/06/95, respectively). During this period (1991 – early 1995), the Bank of Russia increased the required reserve ratio. Thus, as of June 1, 1991, the required reserve ratio was 2%. Gradually increasing this standard, the Bank of Russia, from February 1, 1995, introduces differentiation of required reserve standards depending on the terms and currency of commercial banks’ obligations: for demand accounts and time-limit obligations up to 30 days - 22%, for time-limit liabilities of banks from 30 days to 90 days - 15%, for term obligations over 90 days - 10%, for current accounts in foreign currency - 2%.
As a result of these tough measures of the main bank on monetary regulation of the economy, the following results were achieved:
Table 1.4.1
during 1991 – 1995
Analyzing the data in the table, we can conclude that the annual value of the consumer price index significantly exceeds the corresponding value of the growth rate of the money supply, which indicates the implementation of a monetary policy aimed at compressing the volume of money supply. Monetary regulation measures carried out to curb inflation achieved their goal, as evidenced by the dynamics of the consumer price index.
Since spring 1995 Central bank The Russian Federation is implementing a policy of credit expansion. The refinancing rate was reduced from 195% as of May 16, 1995 to 21% as of October 6, 1997. During the same period, the required reserve standards change, as evidenced by the table data: Table 1.4.2
Changes in required reserve ratios from May 1, 1995 to May 1, 1997.
| Date of change | Reserve requirements depending on the terms of obligations of commercial banks, % |
|||
| required reserve ratio | On demand and up to 30 days | 30-90 days | Over 90 days | For current accounts in foreign currency |
| 1.05.95 | 20 | 14 | 10 | 1,5 |
| 1.05.96 | 18 | 14 | 10 | 1,25 |
| 1.06.96 | 20 | 16 | 12 | 2,5 |
| 1.08.96 | 18 | 14 | 10 | 5 |
| 1.11.96 | 16 | 13 | 10 | 5 |
| 1.05.97 | 14 | 11 | 8 | 6 |
As the table data shows, the required reserve ratios for obligations credit institutions in rubles in the analyzed period decrease slightly, but for accounts in foreign currency they increase significantly - 4 times.
As a result of the implementation of these activities, the following indicators were achieved:
Table 1.4.3
Dynamics of the consumer price index and the rate of annual growth of the money supply for the M2 aggregate during 1996–1997
Analyzing the data in the table, we can conclude that there has been a change in the relationship between the dynamics of the consumer price index and the growth rate of the money supply for the M2 aggregate: the growth rate of the money supply exceeded the inflation rate for the analyzed indicator. In general, during 1996-1997 the positive trend of decreasing inflation rates continued. The situation changes in 1998 as a result of the August crisis. Trying to prevent a crisis, the Bank of Russia, as a body monetary regulation, increases the refinancing rate. Initially, the rate was increased to 28% as of November 11, 1997, then to 42% as of February 2, 1998, after which a chaotic change in the refinancing rate occurred: in the period from July 11, 1997 to August 1, 1998, the rate changed 10 times , both in the direction of increase and in the direction of decrease. During the same period, they increase reserve requirements for funds raised by banks in foreign currency: up to 9% as of November 11, 1997 and up to 11% as of February 1, 1998. Despite the measures taken, the crisis could not be prevented. To reduce the negative impact of the crisis of August 24, 1998, the Bank of Russia is introducing a single standard for funds raised by credit institutions in rubles and foreign currency in the amount of 10%. For Sberbank of Russia, the required reserve requirement for attracted funds in rubles was reduced to 7%, after which a week later, on September 1, 1998, reserve requirements for attracted funds in rubles and foreign currency for Sberbank of Russia and credit organizations with a share of investments in government securities (GKO-OFZ) in working assets is 40% or more, reduced to 5%; for credit institutions whose share of investments in government securities in working assets is 20-40%, reserve requirements for funds raised in rubles and foreign currency are set at 7.5%.
Despite the implementation of these measures, the Bank of Russia was unable to prevent an inflationary surge, while the consumer price index for 1998 was 84.4%, and the growth rate of the money supply for the M2 aggregate was 20.9%.
In the post-crisis period, the Bank of Russia continues to implement a policy of credit expansion, gradually reducing the refinancing rate. However, at the same time, the main bank of the country increases reserve requirements, as a result of which two instruments of monetary regulation of different directions operate simultaneously, which led to the following results: Table 1.4.4.
Dynamics of the consumer price index and rates
annual growth of money supply according to the M2 aggregate
during 1999 – 10 months of 2001
Analyzing the table data, we can draw the following conclusions: the growth rate of the money supply exceeds the inflation rate according to the consumer price index. With a significant increase in the money supply (by 55.6% in 1999 and 62.5% in 2000), prices for consumer goods increased by 36.5% and 20.2%, respectively. Positive dynamics of decreasing inflation rates were also observed in 2001. Consequently, the increase in the total volume of money supply did not lead to the development of inflationary processes, which also demonstrates the regulatory role of the main bank of the country.
