How does Bangladesh Bank inject money into the economy

Bangladesh Bank uses several different methods to increase (or decrease) the amount of money in the banking system. These actions are referred to as monetary policy. Bangladesh Bank could print paper currency at its discretion in an effort to increase the amount of money in the economy – but this is not the measure used. Here are three methods Bangladesh Bank uses in order to inject (or withdraw) money from the economy:

Bangladesh Bank can influence the money supply by modifying reserve requirements, which is the amount of funds that banks must hold against deposits in bank accounts. By lowering the reserve requirements, banks are able loan more money, which increases the overall supply of money in the economy. Conversely, by raising the reserve requirements of the scheduled banks, Bangladesh Bank is able to decrease the size of the money supply.

Bangladesh Bank can also alter the money supply by changing short-term interest rates. By lowering (or raising) the discount rate that banks pay on short-term loans from Bangladesh Bank, Bangladesh Bank is able to effectively increase (or decrease) the liquidity of money. Lower rates increase the money supply and boost economic activity. However, decreases in interest rates fuel inflation, so Bangladesh Bank must be careful not to lower interest rates too much for too long.

Finally, Bangladesh Bank can affect the money supply by conducting open market operations. In open operations, Bangladesh Bank buys and sells government securities in the open market. If Bangladesh Bank wants to increase the money supply, it buys government bonds. This supplies the securities dealers who sell the bonds with cash, increasing the overall money supply. Conversely, if Bangladesh Bank wants to decrease the money supply, it sells bonds from its account, thus taking in cash and removing money from the economic system.