Why is it important for governments to regulate the money flow in an economy?

The government is usually involved in the monetary policy of its national especially through the central bank, The Federal Reserve for the United States.

It is very essential for the government to be involved in the regulation of money flow in an economy so as to set and control the rate of interest rates. For instance in setting the federal funds rate that banks charge among themselves.

The government is crucial in helping to control inflation.

The government may have to use the tools of monetary policy to bring the economy to equilibrium through expansionary monetary policy and contractionary policy.

Governments regulate money flow so as to keep check of activities such as gambling and the monies that proceed from such activities.

The government is also keen on the taxation policy as a measure of regulating money flow. Additionally, in order to boost investment levels and create job opportunities the government has to be involved in the regulation of money flow.