Central Bank

A central bank is the most important institution of the country which is responsible for safe-guarding its financial stability and thus it is guided not by profit motive but by the principle of maximum welfare of the society.

It controls and monitors all the activities, directly or indirectly of all other banks. It holds the ultimate reserves of the nation, controls and supply of money and acts as the banker to the state. It performs many other important functions. It sees that the monetary policy is formulated as according to the conditions of the economy and sees towards its implementation. It issues notes and currencies within the country and is entrusted with responsibility of maintaining the price level in the country stable. It acts as bank to the government and it directly or indirectly controls the activities of all other banks.

Origin of Banking

Modern banking system, in practice, is spread over the whole civilized world from England. The banking system originated from the following three sources:

The Goldsmiths:
In ancient time, it was very difficult for an individual person to protect his wealth. So, some persons having the qualities of solvency, safety and safety, were trusted to keep money of the people as deposits. The depositors would be given slips as the proof of their deposits. With the reputation of gold smiths these slips were accepted by the people instead of money in transacting business. These slips were the origin of modern bank notes.

Money-Lenders:
Money lenders were those people who lend their own money to the people and earned profit in the form of interest. They were considered original bankers.

Merchants:
The merchants were considered respectable people due to good repute of dealings and strong financial background. These merchants mainly financed foreign trade by issuing slips through their agents. These slips were the origin of modern bills of exchange, bank's draft, letters of credit etc.