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Why central banks borrow money from world bank instead of making it?


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No, the Government does not sell money to the banks. Instead they loan it to them at very low interest rates. The banks borrow money from the central bank a.k.a the government to use for their operations and repay the money along with the interest to them.

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The sources of funds for banks are as follows: Take money from the capital investment on the bank Take money from the money deposited into their accounts by customers Borrow money from other banks Borrow money from the central bank of the country

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Banks may get money to make loans, by the following ways: a. Use their Capital Reserves b. Accept Deposits from customers c. Borrow money from other banks d. Borrow money from the central bank

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Central banks control interest rates by altering the repo rate. Repo rate is the rate at which banks borrow money from the central bank. So if the central bank hikes the repo rate, the banks will automatically hike their lending rates. similarly if the central bank reduces the repo rate, banks will lower their lending rates too.

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Carel C.A. van den Berg has written: 'The making of the Statute of the European System of Central Banks' -- subject(s): Banks and banking, Central, Central Banks and banking, European Central Bank, European System of Central Banks


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