What Are The Functions Of The Central Bank As A Banker's Bank?


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Mahwash Marcel Profile
Mahwash Marcel answered
The central bank acts as a banker's bank. In this capacity it performs valuable services to its scheduled commercial banks. These indispensable services are as follows:

a. Lender of the last resort: a friend in need is a friend indeed, as a popular saying goes. It exactly applies to the relations of the central and commercial banks. In crisis, when a commercial bank has exhausted all its resources and still finds itself unable to meet all its obligations and outstanding dues the central bank comes forward to rescue it.

b. Rediscounting of the bill of exchange: another invaluable service performed by the central bank is to rediscount bills of exchange. Commercial banks discount bills of exchange of businessmen. Discounting means encashment of the bill before it matures, at a rate of interest.

c. Clearing house services: the central bank provides clearing house facility to commercial banks. Every bank receives cheques drawn on other banks, because of which every bank becomes creditor or debtor to the other bank or banks.

d. Cash reserves: under banking law, every commercial scheduled bank is bound to deposit a certain percentage of all its deposits (time and demand deposits) with the central bank.

e. Counseling services: the central bank offers precious advice and counseling services. In the light of its expert opinions and advice commercial banks formulate and readjust their policies.
Anonymous Profile
Anonymous answered
Functions of Central Bank:
The important functions of Central Banks are as follows:-

1-Sole right of note issue
The Central Bank in every country, now, has the monopoly note issue. The issue of notes is governed by certain regulation which is enforced by the state.

2-Banker to the state
A Central Bank acts as a banker to the government. It holds cash balances of the government free of interest.

3-Banker's bank.
The central bank acts as a banker to the commercial banks.

4-Banker's clearing house
The Central Bank acts as a clearing house for the settlement of mutual obligations of different commercial banks. If a difference exists, it is paid by a cheque drawn on the banks accounts carried at the Central Bank.

5-Lendor to the last resort
The Central Bank helps the member banks in times of crisis.

6-Financial agent
The Central Banks act as financial agents for the government. It is an agent for the government in purchasing and selling of gold and foreign exchange.

7-Effective monetary policy
The aim of the government is to create employment in the country, resist undue inflation and achieve a favorable balance of payment.

8-External functions
The Central Bank also performs a number of external functions

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