Functions of Central Bank

Functions of Central Bank

1.    Issuing Currency Note Authority

Central bank of a country has authority over issuing currency notes & coins. Central bank enjoys monopoly in this regard, and has full and final authority for issuing currency notes & coins. Currency notes & coins issued by central bank are regarded as genuine & legal.

2.    Service to the Government

Central bank performs number of services to the government. Therefore Central bank may be termed as bank for the Government. These services include advice on financial issue for policy formulation i.e. taxation policy, fiscal policy, monetary policy etc.

3.    Maintain Gold Reserve

Central bank maintains gold reserve against currency note issued in the country. In certain countries this is a legal requirement to maintain a certain percentage of Gold reserve in respect of issued currency. Gold reserve improves public confidence on the currency.

4.    Maintain Foreign Exchange Reserve

Central bank also maintains foreign exchange reserve which has vital importance for international trade; because international trade is done in internationally recognized currencies i.e. US Dollar, Euro etc and therefore a sufficient balance of foreign reserve is must for essential imports & other international payment (loan).

5.    Controlling authority over Commercial bank

Central bank is a controlling authority over the commercial banks. Central bank regulates & monitors commercial banks activities and services. Central bank issues different guidelines and directives for the provision of standard services to the customer.

6.    Monetary Policy

Central bank controls the money & credit supply in the country. Money & credit supply is fundamental aspect for inflation control in the country. Increase in money supply will result in inflation, and therefore central bank keep close eye on money supply in the economy.

7.    Services to  Banks

Central bank provides number of services to the banks. Central bank may be termed as banker for commercial bank. Services provided by the central bank to the commercial banks include clearing services, provision of loan, and maintain deposit of commercial banks.