Tuesday, January 20, 2009

Functions of Central Bank

The central bank is the private of all the banking system. The chief functions of a central bank may be described as follows:

1. Issuing Notes: The central bank has the sole responsibility and monopoly of issuing notes within the country. It is the sole currency authority. The central bank is required to keep a certain percentage of gold reserves against issue of notes.

2. Government’s Bank: The central bank acts as a financer of the government. It keeps the government funds in the custody free of interest. It helps the government in designing a fiscal policy for the country so it also plays the role of financial advisor to the government.

3. Banker’s Bank: It acts as the custodian of cash reserve or balances deposited compulsorily by the scheduled banks. Either by law or custom the member banks have to keep certain portion of their deposits with the central bank as reserve.

4. Credit Control: Probably the most important function performed by the central bank is that of controlling the credit operations of commercial banks. Control of credit means the regulation and control of bank advances.

5. Clearing House: It is the “Clearing House” of the banks. Under this function central bank facilitates the settlement of bills and cheques of other banks.

6. Exchange Control: It is the responsibility of the central bank to control foreign exchange and maintain the rate of exchange. It prepares the balance of payment accounts of the country, and helps the government to keep the balance favourable.

7. Custodian of National Reserve: It is the central bank which serves as the custodian of a nation’s reserves of gold and foreign exchange. It is its duty to take appropriate measures to safeguard these reserves.


  1. yes nice blog :)
    atleast i came to know who is "Custodian of National Reserve" ;)
    i always tought its zardari and upcoming zardari :D

  2. BilluBilla and Duffer welcome to my blog.