ABSTRACT
The central bank's open-market operations can be regarded as having potent effects on M by virtue of the 'leverage' inherent in the bank credit multiplier process. If the central bank has to use direct controls to restrict the money supply, that in itself is partial refutation of doctrines based on the bank credit multiplier approach, which imply that supposedly superior market weapons are capable of producing the desired result. The central bank has the twin duties of supporting financial markets, and of controlling these markets in the interests of general macroeconomic policy. These duties can in certain circumstances conflict, and in the absence of some reconciling expedient the central bank must give priority to its supporting role. Academic discussions of monetary management in general, and orthodox bank credit multiplier theory in particular, have in recent decades almost totally neglected consideration of the support duty.
