Question

0.Briefly discuss the following functions of central bank:
(b). currency authorty
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Answer 1

Answer:

The central bank is given the sole monopoly of issuing currency in order to secure control over volume of currency and credit. These notes circulate throughout the country as legal tender money. It has to keep a reserve in the form of gold and foreign securities as per statutory rules against the notes issued by it. It may be noted that RBI issues all currency notes in India except one rupee note. Again, it is under the directions of RBI that one rupee notes and small coins are issued by government mints. Remember, the central government of a country is usually authorized to borrow money from the central bank.

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Answer 2

Answer:

(i) Currency Authority: Central banks have monopoly rights of issuing notes. This is called currency authority function of central banks. All notes issued by the central bank are an unlimited legal tender in a country.

(ii) Banker to the Government: Central bank is a banker, agent and financial adviser to the government. It manages the account of the government, it buys and sells the securities of the government and it frames policies to regulate the money market.

(iii) banker's bank and supervisor - central bank is also known as banker's bank. As it is a banker, agent and financial adviser to the bank. It manages the account of the other commercial banks, provide the banks with cash at the time of immediate cash crunch and it frames policies to regulate the money market.