Government Borrowing

Government Borrowing


Treasury bill is a financial instrument which is used by central bank or government to collect money from schedule bank as well as to control the money market. Recently government borrowed a total of TK. 1.393 billion through the auction of treasury bills. It has a great impact on our economic existence.

What happens when government borrows from bank?

Last two months call money rate stayed between 18% and 24%. But usually it deals with 2% to 4%. In this situation, it was difficult for banks to lend money to their customers. So schedule banks ran out of liquidity. When government borrowed money from banks through T-Bills, it created more liquidity crisis for the banks and money market faced a great disruption in their monetary function. In the market, the demand of money was steady but the supply was drooped down and this caused acute shortage of money. By the mean time bank rate increased up to 70%.


Positive Effect

1. Due to shortage of reserve investors fail to open L/C and that causes declining of import
2. Export of government oriented industries are increased when government contribute financially in jute, tea etc. sectors.
3. As export increases the expansion of market outside the country increases.
4. Creates exchanging power of the indigenous money market

Negative Effect

1. Investment of end level clients decrease because they face the shortage of fund in the money market
2. Lack of investment causes reduction of producing goods and services
3. Creates unemployment problem
4. Lessens purchasing power

How such borrowings effect the interest rate of bank loan and bank deposit?

When government pull out money from the money market bank faces a great liquidation crisis. Such kind of borrowing affects the interest rate of bank loan and deposit. To meet the liquidity crisis...

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