Sunday, May 15, 2011

What are the major functions of central bank?

In modern time, the broad functions of central bank can be mentioned as follows;
a. Issues of currency: To maintain the currency standard on the lines of uniformity central banks has created money in every country under its vaults of complete secrecy. It decides about the colour, size, shape and appearance of the currency or money.
b. Government Banker: All the banking business of the govt. and its various departments, undertaking and ventures is undertaken by the bank of the country. So central bank known as govt’s banker.
c. Credit control: Various fluctuations in the monetary system occurring due to the expansion of credit. Credit is controlled by the central bank of the country.
d. Custodian of the cash reserves of commercial banks: Central bank controls all the commercial bank functioning at the various places in the economy. The commercial banks must deposit certain amount of money with the central bank to function properly in the economy.
e. Controller of the foreign exchange: Foreign exchange is a coveted trophy which every businessman wants to acquire for his prosperity. The central bank keeps a control over the national reserve for foreign exchange.
f. Nations clearing house: Clearing house work refers to the settlements of differences between the commercial banks regarding their mutual transactions. This function of central bank provides due economy in the maintenance of liquid money and capital stocks.

The other function of central bank can be named follows:
g. Re-discounting authority.
h. Banks of the commercial banks
i. Advisor of the government on financial matter
j. Supervisor of the activities of the commercial banks
k. Publisher of various statistics information.

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