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What Is The Role Of Central Bank In Underdeveloped Money Market?

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Money market consists of all the institutions which are engaged in the borrowing and lending of short term funds. The members of money market are central bank at the top, commercial banks, co-operative banks, saving banks, specialized financial institutions, discount houses and stock exchange. Money market may her be distinguished from capital markets.

Capital market is a collection of specialized institutions engaged in the employment of medium and long term funds primarily for the raising of new capital. In a developed country the money market is highly organized and diversified whereas in developing countries there are few organized institutions which trade in the borrowing and lending of short term debts. In a developing country the commercial banks, cooperative banks, saving banks and other financial institutions do exist but they are relatively few and are usually concentrated in big city arrears. There is also no stable and active market for the sale and purchase of bonds and securities.

The lack of financial institutions greatly hampers economic progress in a country. When the number of institutions are a few and scattered, people consume more of their income. Saving in kept under mattresses or at some other hidden places. Saving is also done in order to attract the people to save.

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