Meaning and Functions of Central Bank?

By | October 22, 2021

Every country in the world has a supreme bank. This supreme bank is called central bank. Central bank plays a very important role for the entire economic development of the country. It is a national bank that is established mainly with the purpose of serving its country’s government and other commercial banks.

Meaning and Functions of Central Bank

Central bank does all the work that is essential to successfully regulate the economy. Implementing government’s monetary policy and issuing currency come under the main responsibilities of any central bank.

Central Bank is an independent authority of a country. It is also known as the bank of the government and banker’s bank because it provides all the necessary financial help and advice to them. It has sole authority to control the production, circulation and supply of money in the market. It oversees the entire economy to stabilize the national economy and currency.

Functions of Central Bank

  • Issue of Notes
  • Bank of Government
  • Banker’s Bank
  • Credit Control
  • Conservation and Management of Foreign Currency
  • Data Collection
  • Economic Development
  • Clearing House Function

Issue of Notes: – In present world, central bank does the entire works of issue notes. It issues notes only under the security of gold, silver, foreign currency, and government. No other banks are legally allowed to issue notes except central bank.

Bank of Government :- Central bank of the country does the entire work as the government bank. It accepts deposit from all the ministry, government departments, government organizations and offices. It also provides necessary advice to government.

Banker’s Bank:- Central bank is also known as bank of the bank. It is above all other banks. It accepts deposit of other banks, lends loans, provides rules/regulations and directions to other banks.

Credit Control:- Sometimes commercial banks of the country tries to create more credit with the purpose of gaining high profits. And due to this, problem of inflation gets created. In this situation, central bank control the inflation through medium of several monetary methods.

Conservation and Management of Foreign Currency: – Central bank does the work of conservation and management of country’s gold, silver, and foreign currency. It conserves all the foreign currencies received by nation in it’s own fund and makes arrangement for the appropriate use of that conserved foreign currencies.

Data Collection: – Central bank collects and publishes all the necessary economic, monetary and fiscal data.

Economic Development:- Central bank also plays a great role in the economic development of the country. It does the work of price stability, arranges several means and sources and prepares suitable environment for the development of nation.

Clearing House Function:- Sometimes the work of economic transaction should be done between banks and banks. Hence, the works of transaction, payment, settlement of debts/advances between the banks are done through the medium of central bank. And this is called clearing house function.

Who Controls the Central Banking System?

Central banks are usually controlled by a country’s government, but some countries have independent central banks. For example, the Bank of England is an independent central bank that is not controlled by the British government.

  • Central bank controls the entire money supply in a country. But, do you know who controls money in the entire world?
  • Money is the most motivating and powerful thing in the world. It can make or break a country and its economy. There are many countries that have more money than they know what to do with, while others are struggling to keep up.

The question of who controls money in the world is an interesting one because it revolves around a lot of different things, such as regulations, taxes, and economic policies. The answer to this question can be found by looking at how much money each country has and which countries have more control over the global economy than others.

How Do Central Banks Make Money?

Central banks are generally non profit-oriented institutions. They are there to keep the economy stable and manage inflation. They earn profit by issuing currency and collecting interest on the cash deposited with them. They also earn profits from foreign exchange transactions and trading in government securities.

Central banks also collect fees for services like check clearing or electronic funds transfer. When the value of a country’s currency increases, it becomes more expensive for people in that country to buy goods from abroad.

How Central Bank is the Lender of Last Resort For Commercial Bank?

Central banks are the lender of last resort for commercial banks in the event that the latter cannot find enough funds to meet their obligations. Central bank is a bank that is responsible for regulating a country’s monetary and banking system, and typically provides loans to commercial banks when they need it.

They provide liquidity to commercial banks by lending in various ways. They can provide short-term loans, medium-term loans, and long-term loans.

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