Central bank and its functions

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1. Central bank and its functions Jashanpreet Kaur XII commerce

2. INTRODUCTION The Central bank plays an important role in the Monetary and Banking system of a country. It is responsible for maintaining financial severeignty and economic stability of a country especially in underdeveloped countries.

3. What is a central bank ? Central Bank is the supreme monetary institution which is at the apex of the Monetary and Banking structure of a country . It is the leader of the money market and as such it controls regulates and supervises the commercial banks . It is the central monetary authority which manages the currency and credit policy and money supply of the government.

4. Defination of central bank  De Kock -"a bank which constitutes the apex of the monetary and banking structure of the country .“ Vera Smith-"the primary definition of central bank is a banking system in which a single bank has either a complete or residuary monopoly of note issue .“ Bank for International settelments -"the bank in any country which has been entrusted the duty of regulating the volume of currency and credit in that country."

5. Functions of Central B ank

6. Functions of central bank Bank of note issue: The Central Bank has the sole monopoly of note issue in every country. The currency notes printed and issued become unlimited legal tender throughout the country

7. INDIAN CURRENCY NOTES ISSUED BY CENTRAL BANK

8. Functions of central bank  Banker ,Agent and Adviser to the Government : It maintains the accounts of central as well as state governments. It receives deposits from government and makes short term advances to the government. As an agent to the government it collects taxes and other payments on behalf of the government. It raises loans from public and thus manages public debt. As a financial adviser to the government, it gives advises to the government on economic, financial and fiscal matters, such as deficit financing, devaluation, trade policy, foreign exchange policy etc.

9. Functions of central bank  Bankers' Bank: The central bank acts as a custodian of the cash reserves of commercial banks. Lender of last resort: In case the commercial banks are not able to meet their financial requirements from other sources, they can always approach central bank for financial accomodation . The central bank accomodates finances to the commercial banks by rediscounting their eligible securities and exchange bills.

10. Functions of central bank  Clearing house: Since all banks have their accounts with central bank ,it can easily settle the claims of various banks against each other with least use of cash. Custodian of foreign exchange reserves: this function helps the central bank to overcome the balance of payments difficulties and to maintain stability in foreign exchange rates. In order to minimise the fluctuations in foreign exchange rates the central bank buys or sells the foreign currencies in the market as the value of foreign currencies falls or rises.

11. Functions of central bank  Controller of credit: By controlling the credit effectively the central bank establishes stability not only in the internal price level but also in foreign exchange rates. Such a stability is necessary for economic growth and smooth functioning of the economy. Developmental role: In the developing countries apart from traditional functions, it performs developmental and promotional functions. On one hand it helps to develop money and capital markets and on other hand it takes measures to promote economic development and maintain price and exchange stability.

12. Other functions  (a) It maintains relations with International institutions such as IMF World Bank. (b) It collects various types of statistics providing current status of the economy. (c) It conducts surveys seminars and publishes reports on other matters. (d) It helps in developing banking system and banking habits in the country. ( e) It extends training facilities to the staff working in banking institutions.

13. Conclution  In short the Central bank functions as supreme monetary institution in the country by acting as Banker to the government and to the commercial banks ,a controller of monetary system of the country and a promoter of economic growth of the country. It performs these functions without any profit motive and in the interest of the general public.

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