Finance

Functions of Central Banks

General functions of central bank are as follows:

1. Supervision of the banking system

2. Advising the government on monetary policy

3. Issue of banknotes

4. Acting as banker to other banks

5. Acting as banker to government

6. Raising money for the government

7. Controlling the nation’s currency reserves

8. Acting as “ lender of last resort”

9. Liaising with international bodies

Lets look at little brief of some of them:

1. Supervision of the banking system: Central bank supervises the banking system of the country. Central may be responsible for banking system. They collect information from commercial bank and take necessary decision by two ways- a) bank examine and b) bank regulation 

2. Advising the government on monetary policy: The decision on monetary policy may be taken by the central bank. Monetary policy refers to interest rates and money supply. The central bank will corporate with the government on economic policy generally and will produce advice on monetary policy and economic matters, including all the statistics. 

3. Issue of banknotes: The central bank controls the issue of banknotes and coins. Most payment these day do not involve cash but cheques, standing order, direct debit, credit cards and so on. Nevertheless, cash is important as bank’s cash holdings are a constraint on creation of credit, as we have seen.


4. Acting as banker to other banks: The Central bank will act as banker to the other banks in the country. As well as holding accounts with international bodies like IMF World bank. It is a common habit for the central bank to insist that the other banks hold non-interest bearing reserves with in proportion to their deposit.


5. Acting as banker to government: Normally a central bank acts as the government’s banker. It receives revenues for Taxes and other income and pay out money for t6he government’s expenditure. Usually, it will not lend to the government but will help the government to borrow money by the sales of its bill and bonds. 

6. Raising money for the government: The government Treasury bill and bond markets are covered by the central bank. While sometimes the treasury or ministry of finance handle

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