Central Bank is an apex bank in banking structure of any country. It is single most important and influential bank in the economy. For example, RBI in India and Federal Reserve Bank of USA.
Central Banks frame rules and regulations for banks in their respective countries. They are owned by the governments of their respective countries.
The Central bank also acts as a banker for government and other banks in the economy. That's why a central bank is also called as bankers bank.
The Central bank also acts as a banker for government and other banks in the economy. That's why a central bank is also called as bankers bank.
The chief of the Central Bank is called as the governor in India.
Following are the functions of a central bank:
Acts as a banker to the government - It collects tax revenues on behalf of the government and uses it to make payment of goods purchased and services availed by the government.
Acts as banker to the commercial banks - Central Bank acts as the bank of all the bankers in the economy. Hence it is called the bank of the bankers. Holding accounts at central bank helps commercial banks to settle debts between each other.
Acts as lender of last resort- If a bank has a temporary shortage of funds it can approach the central bank for help. The temporary shortage of money may be due to customers withdrawing more money than usual. Central Bank is the last hope for any bank which is in trouble.
Manages the debt of the nation- Governments do raise money from time to time by issuing various securities. The government's debt is managed by the central bank by issuing government securities (Example, Government bonds), paying interest on them and repaying the debts (borrowings) as and when they are due
Issuing of currency notes - It has the monopoly of issuing currency notes of the country.
Holds the country's foreign exchange reserves and gold - The Central Bank holds foreign exchange reserves of the country
Controls the banking system - Keeping banking system safe and secure is the responsibility of the Central Bank. It has the authority to lay down rules and regulations to be followed by all the other banks in the country
Represents the government - It represents the government of the country at international forums like IMF and World Bank
Implements the government's monetary policies - The central bank implements the government's monetary policies.
Read further - Difference between Central Bank and Commercial Bank
Read further - Difference between Central Bank and Commercial Bank
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