Question

Functions of central bank long ans ??

Answer 1

Heya...

See here for your answer....

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Central bank is the apex of bank that regulates entire banking system of the economy...

Functions of Central Bank are ...

• Note issuing authority

Central bank has the note issuing authority , except coins all the notes are issued by the Central Bank..

• Banker to the govt

Central bank act as banker to the govt. it gives lockers and the loans to the govt...

• Credit control

Central bank control the credit by using many instruments like CRR , SLR etc...

• Foreign reserve holder

Central bank has the reserves of the foreign exchange and it use to run the outside transactions...

• Lender of the last resort

If any commercial bank fails to meet his needs then it gives loans to the commercial banks...

• Clearing house function

Central bank work to clear the house means to say to clear the cheque of different banks the same point of time from one bank to other...

Hope it helps u ..

Thank you

Answer 2

1. Issue of Currency:

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 authorised to borrow money from the central bank.

When the central government expenditure exceeds government revenue and the government is unable to reduce its expenditure, then it borrows from the RBI. This is done by selling security bills to RBI which creates new currency notes for the purpose. This is called monetisation of budget deficit or deficit financing. The government spends new currency and puts it into circulation to meet its expenditure.

2. Banker to Government:

ADVERTISEMENTS:

Central bank functions as a banker to the government—both central and state governments. It carries out all banking business of the government. Government keeps their cash balances in the current account with the central bank. Similarly, central bank accepts receipts and makes payment on behalf of the governments.

Also, central bank carries out exchange, remittance and other banking operations on behalf of the government. Central bank gives loans and advances to governments for temporary periods, as and when necessary and it also manages the public debt of the country. Remember, the central government can borrow any amount of money from RBI by selling its rupees securities to the latter.

3. Banker’s Bank and Supervisor:

There are usually hundreds of banks in a country. There should be some agency to regulate and supervise their proper functioning. This duty is discharged by the central bank.

Central bank acts as banker’s bank in three capacities:

(i) It is the custodian of their cash reserves. Banks of the country are required to keep a certain percentage of their deposits with the central bank; and in this way the central bank is the ultimate holder of the cash reserves of commercial banks, (ii) Central bank is lender of last resort. Whenever banks are short of funds, they can take loans from the central bank and get their trade bills discounted. The central bank is a source of great strength to the banking system, (iii) It acts as a bank of central clearance, settlements and transfers. Its moral persuasion is usually very effective so far as commercial banks are concerned.