(ii) Loans From the
Central Bank:
A government can raise loans from the
Central Bank of the country. The Central Bank purchases the government
securities, bonds and debentures from the government and advances loans against
them. Almost every modem state is obtaining funds by this method. Like other
methods of borrowing, there is no limit to which a state can raise funds by this
method. The limit is reached when money begins to .expand in excess of needs of
the trade. This is because of the fact that when currency is issued in excess of
the amount justified by the state of trade, then it inflicts incalculable loss
to the community by disturbing trade and industry. It paralyses the whole of
economic system.
We conclude, therefore, that every
state should borrow from central bank within reasonable limits. It should not
cross ordinarily the limits of safety. When a loan is raised, it has to be
repaid. So why to burden ourselves too much? If, however, the existence of the
state is in danger, then loan can be raised to any limit.
(iii) External Loans:
External loan is that which is raised
from international money markets, foreign government and from international
agencies like International Monetary Fund. When a state is in need of money, it
tries to get as much loan as it can from other states. The foreign governments
do not advance loans without a limit. They minutely study the budgetary position
of the borrowing country, the tax-bearing capacity of the nation, the per capita
income of the people and the purpose for which the loan is desired. If the
position of the budget is sound and the taxable capacity of the nation is high,
then a foreign government may advance sizable loan to the borrowing country.
