XII Banking - Question 7 - Functions of a Central Bank

Q.2 Indicate the different functions of a Central Bank.

A Central bank performs many important and essential functions which are described as follows:




MONOPOLY OF NOTE ISSUE
Formerly in certain countries, many banks issued their own notes. This resulted in uncontrolled confusion. Hence, gradually the right of note issue was withdrawn from ordinary banks. Note issue became the sole privilege of the central bank. Today the central bank in every country enjoys the exclusive privilege of bank note issue.




BANK TO THE GOVERNMENT
This functions of a central bank may be studied under the following two heads.


As Banker To The Government

As governments banker, the central bank keep the deposits or banking accounts of government departments boards and enterprises. It advances short term loans to the government in anticipation of collection of taxes or the raising of loans from the public. It also makes extra-ordinary advances during depression, war or other national emergencies.


As An Agent Of The Government

As an agent of the government the central bank is often entrusted with the management of the public debt and issue of new loans and treasury bills on behalf of the government. Moreover the central bank is the fiscal agent to the government and receives taxes and other payments into its account.