Question

How does the central bank influence the economy in detail? How does the commercial bank influence the economy in detail?

Answer 1

Firstly, central banks control and manipulate the supply of national money: issue currency and set interest rates on loans and bonds. Central banks usually increase interest rates to slow growth and prevent inflation; lowering them to stimulate growth, economic activity and consumer spending. We conduct monetary policy in this way to direct the economy of the country and achieve economic goals, such as full employment.

Second, they control member banks by means of capital requirements, reserve requirements (which determine how much banks will lend to customers and how much cash they have to hold on hand), and deposit guarantees, among other instruments. They also provide loans and services to banks and government of a nation, and manage foreign reserves. Finally, to distressed commercial banks and other institutions, and sometimes even a government, a central bank also acts as an emergency lender. The central bank , for example, provides a politically attractive alternative to taxation by purchasing government debt obligations when a government needs to increase revenues.

Commercial banks have always been instrumental in any country's overall growth and development. They play a decisive role and they drive any economy's growth. Whether it is a sector, the entire destiny of trade and commerce depends on the banking industry and thus banks are considered the backbone of any economy. They serve not only as the custodian of the wealth but also as the country's capital needed for a nation's overall economic development

Commercial banks aid by using branch banking to raise savings. These banks induce people into the culture of saving by introducing them to various deposit schemes. The banks are mobilizing savings and channeling them into productive investments, helping in the formation of capital.
Banks provide financing for internal as well as cross-border trade. They offer loans to traders (shopkeepers, wholesalers) and also help in the movement of goods by providing facilities such as discounting and accepting exchange bills, overdraft, credit letters, etc.