Central Bank and its functions?

According to “Decock”, the guiding principal of the central bank is that it  should act only in the public interest of the welfare of the of the country as a whole and without regard to profit as a primary consideration

                        “Function”

The following are the main function of the central bank:

1.                 Issuing of notes/currency:

The central bank has the authority to issue currency notes. The central bank makes uniformility in the size and color of notes. Notes are issued according to the need of the need of the public. The central bank can control the volume of credit In the country due to the sole-right of the note issue.

2.                 Banker to the government:

The central bank act s as the banker to the government in following ways:

a.     The government dues are paid through the central bank.

b.     It keeps the funds of the government and no interest is paid on such balance.

c.      It manages the public debts on behalf of government.

d.     It provides foreign exchange to the government for the purchase of foreign goods.

e.     As adviser to the government. It gives adviser on all financial matters such as deficit financial.

3.                 Adviser to the government:

Central bank also acts as financial adviser to the government because the central bank deeply involved in the money market and foreign exchange market. It therefore, tender adviser on financial and economic matters to the government. It also adviser to the commercial banks. Financial institution and industry.

4.                 Banker’s bank:

As banker to the commercial banks. The central bank performs the following functions:

                                                        i.            It holds cash reserves and deposits of the commercial banks.

                                                      ii.            It re-discounts the bill of exchange of commercial banks to cover temporary difficulties.

5.                 Lender of the last resort:

The central bank acts as the lender of the last resort. When the commercial banks fail to meet the demand for cash. They can get funds from the central bank. The central bank provides funds to the commercial bank against securities, re-discounting of bill of exchanges. This facility is only given to the members banks.

6.                 Cleaning/clearing house:

A clearing house is a place. Where the representatives of the commercial banks meet to exchange. Cheques drawn on each other and the different are settled by the central bank. Therefore, central bank acts as a clearing house for the members banks. All commercial banks have their reserves with the central bank. The difference is settled by the central bank from these reserves.

7.                 Controller of credit:

The central bank is the controller of money market. It controls the volume of credit according to the requirements of the economy. The commercial bank creates credit in proportion to their funds. The created creation activities are control by the central bank through different methods. These methods are bank rate policy. Open market operation and direct actions.

8.                 Development functions:

The central bank takes keen interest central bank takes keen interest in the development of economic condition of the country. It insures that the funds available are allocated to the different sectors such as, agriculture, industry and export.