The origin of central banking system can be traced back to 1694 when the bank of England came into being as the first ever central bank. The bank was established to help King William III out of his government's financial crisis.
Earlier the functions of the central bank included the issue of currency notes, would be performed by several commercial banks separately. Every bank's notes were different from each other's in color, size, value and even market good will. That is, the notes lacked uniformity, producing an immense chaos in the smooth running of the trade. Consequently, the paper currency system was unstable, unreliable, and used to yield to gold and silver currencies. However, the metallic currency system could not keep pace with the industrial revolution and later the fast industrial development and fast pace of trade and industry phenomenon and resultant commercial banking role spurred the need for a bank to centrally issue currency notes. So this function fell into the central bank. The shift of this function strengthened the concept of the financial and economic aspects of the paper currency, uniformity and public confidence.
In the beginning the central bank was mainly confined to issuing paper currency, but at later stages it was entrusted with other crucial functions like credit control, clearing house, management of public debts, rediscounting of bills, custodian of foreign exchange, and the like.
Earlier the functions of the central bank included the issue of currency notes, would be performed by several commercial banks separately. Every bank's notes were different from each other's in color, size, value and even market good will. That is, the notes lacked uniformity, producing an immense chaos in the smooth running of the trade. Consequently, the paper currency system was unstable, unreliable, and used to yield to gold and silver currencies. However, the metallic currency system could not keep pace with the industrial revolution and later the fast industrial development and fast pace of trade and industry phenomenon and resultant commercial banking role spurred the need for a bank to centrally issue currency notes. So this function fell into the central bank. The shift of this function strengthened the concept of the financial and economic aspects of the paper currency, uniformity and public confidence.
In the beginning the central bank was mainly confined to issuing paper currency, but at later stages it was entrusted with other crucial functions like credit control, clearing house, management of public debts, rediscounting of bills, custodian of foreign exchange, and the like.
