Functions and Role of Credit in the Economy

In the general philosophical sense, a function is the simplest, specific manifestation of the essence of an object.

The functions of a loan, like any other category, should reflect its certain essential features, features. Moreover, the functions should characterize the specifics of the manifestation of the content of the loan in all its forms and types. In other words, it is important that the functions are equally suitable for both bank and commercial, state credit. With this in mind, the redistributive function of credit and the function of replacing real money with credit money and credit operations are distinguished.

Credit relations, as explained above, do not arise at the stage of production, but in the process of exchange and redistribution of value. Therefore, the most important function of credit is the function of redistribution of funds and material values.

By means of a loan, temporarily free funds of organizations, the population, the state are accumulated and directed to meet the temporary needs of other economic entities. Such a movement of resources is carried out through the banking system on the basis of the principles of urgency, repayment, security, payment.

A feature of the considered function of the loan, in contrast to the similar function of finance, is that in this case there is a redistribution of not only cash, but also inventory. An example is such a form as a commercial loan, when the object of the transaction is the supplier's goods, which are sold on the condition of deferred payment.

The redistributive function is also characteristic of such a form of credit relations as a state loan. Mobilized temporarily free funds of economic entities are redistributed, sent to finance government spending, cover the budget deficit.

The function of replacing real money with credit money and credit operations is manifested in the fact that in the course of the functioning of credit, such means of payment, debt obligations as a bill, banknote, check are created. These instruments of circulation replaced real money - gold, which was inappropriate to use in transactions where it appeared fleetingly.

In modern conditions, when gold has lost the property of a monetary commodity, the considered function of credit manifests itself differently. Placing cash in the bank for a certain period or on demand, the client acts as a creditor, the bank as a borrower. Cash is credited to a bank account and converted into non-cash. For some time, they can be provided to another entity as a loan, including in cash. Now the bank acts as a lender, and another client as a borrower.

Thus, in the course of the loan, cash is constantly being replaced by non-cash money - records in bank accounts.

The role of credit expresses the result of credit relations. With the help of a loan, the economy is regulated both at the macro level through the conduct of monetary policy by the state represented by the central bank, and at the micro level in the process of lending to borrowers by commercial banks. Thus, the role of credit is that it maintains certain proportions between the money supply and the mass of commodities, influences inflationary processes, and regulates money circulation.

The role of credit can be considered in another aspect. Experiencing a temporary need for funds, organizations apply to the bank for a loan, i.e. credit acts as a source of formation of fixed and working capital. As a result of the use of credit, the reproduction process and the circulation of funds are accelerated.

Credit creates future income. This is expressed in the fact that savings formed in the past are used for future investments. Credit contributes to the connection of scattered savings in space, temporarily free funds and their direction to needy subjects.

It should be noted that the role of credit cannot be realized automatically. Everything depends on many subjective factors, including the methods and principles of the banking system. Therefore, credit can also have a negative impact on the economy. The possibility of such influence is associated with the function of creating and introducing additional means of payment, both in cash and in non-cash forms. Consequently, the irrational use of credit always leads to inflation, an increase in the money supply.

In order to avoid a negative result of credit relations, it is necessary to take into account the following conditions:
1) the amount of means of payment put into circulation by banks in the process of lending to the economy must be countered by a reserve of goods created;
2) loans directed to the economy should not be misused, leading to a violation of the urgency of the return of the loaned funds;
3) lending should be carried out within the resources attracted by banks.