A central bank is a national bank in any country that has the obligation to provide financial as well as banking service for its government and commercial banking system. Other than that, it issues currencies and implements the monetary system. Here are some of the functions
Issuing Of Currency
Only central banks have the authority to issue currency in a country. It secures control over volume of currency and credit. Notes are circulated in the country as legal tender money and there is a reserve in form of gold and foreign securities.
Banker To The Government
The central bank performs all the banking operations of the government. It keeps the balances in its current account. Moreover, it accepts receipts and makes the payments on its behalf. All the baking operations that have to be operated by the government are carried out by their central banks. These activities include carrying out exchange and remittance. It also aids the government in managing public debts. When necessary it loans the government and gives it advances temporarily.
The central bank also has to ensure that the external value of the currency is maintained. In India for example, there are policies that ensure this is observed. All citizens have to deposit with the Reserve of India all foreign currencies or exchange that they receive. In addition to that, all the foreign exchange that is needed has to be obtained from the central bank in the prescribed form
Custodian Of Foreign Exchange
We know that the central bank is the custodian of foreign exchange reserve. It also reserves the gold of a nation. It monitors closely the value of its external currency and controls exchange management.
Collection Publication Of Data
The government entrusts the central bank with the responsibility of collecting and compiling statistical information that has been researched widely. This data is related to banking and other sectors of the economy. The government needs this information so that it can make sound decisions when it wants to better the economy.
Lender To Commercial Banks
When banks have no other way out to carry out their normal operations, they turn to the central banks as their last resort to lend them. It is evident that the central bank will save the bank from a possible break down or failure.
All countries have a central bank for the above reasons. They are in charge of the government’s activities as well commercial banks. They therefore have a role in the economy of a country.