Centralized finance refers to the budget system. These are funds that are needed to ensure the work of the state and municipal apparatus. Within the framework of the system, the budget and its features depend on the characteristics of the state system.
The financial system of many states is a complex of financial relations. One part of which is centralized finance. These are budget systems, state and municipal lending. The monetary resources of the budgetary system are in state ownership or local government.
Why do you need centralized finance
They provide an opportunity for the state to perform its main functions:
- create a regulatory framework;
- monitor the implementation of legislative norms;
- provide comfortable conditions for society;
- regulate market relations;
- stimulate new technology.
At the heart of government monetary systems are budgets. At first glance, they may seem isolated, but when solving large-scale tasks, financial institutions are being strengthened and a consolidated budget is being formed.
A feature of the use of centralized finance is that they not only provide the state administrative apparatus, but also form the country's military reserve. Their stimulating function also plays an important role. It manifests itself through the redistribution of funds between needy enterprises and organizations in order to maintain an important economic sector.
Differences between centralized and decentralized finance
Centralized ones are formed at the macro level. Their source is income from state and municipal enterprises, profits from privatization and the sale of state or municipal property, income from foreign economic activity.
Decentralized funds, unlike the former, are formed at the micro level. They represent a set of regulated forms of organization, management of financial flows of business entities in the process of formation and use of gross income, cash and material savings. Such systems are represented by foundations of commercial and non-commercial organizations, entrepreneurs.
Features of centralized finance
They are a subsystem, the main link of which is the budget system; it depends on the form of the state system. The state budget is the main centralized fund, a tool that allows you to effectively reallocate funds. Its main expenses are:
- fulfillment of political functions of the state;
- solving issues regarding social needs;
- introduction of investments in certain sectors of the economic infrastructure.
Regional needs for money are provided by local budgets. They are distinguished by their independence. Most of these funds are used to address social needs. Additionally, they can be provided with assistance from the state in the form of subsidies, grants, and the issuance of loans on state obligations.
Centralized finance has its own operating principles. They make it possible to identify the direction of the impact of cash flows on the development of the state or municipal sector. The basic principles include:
- Use as a base based on information flows. Analysis of the incoming information is important both when making a decision and in the process of monitoring its implementation.
- Clarity of orientation. All centralized finance affects certain interests of society, but in any case, they are focused on solving centralized problems.
Thus, the main functions of centralization include planning, organization, control. The formation and distribution of financial funds is carried out by the state. For this, within the framework of various regulations, the sources and priority areas for the movement are determined. This is also one of the main differences from decentralized finance in respect of which strict control has not been established.
