What Are The Main Functions Of Central Bank?


5 Answers

Yo Kass Profile
Yo Kass answered

The Functions of a Central Bank-
The main function of a central bank is, in short, to manage a nation's currency. This is achieved by setting monetary policy.
A central bank is responsible for controlling money supply and setting interest rates and reserve requirements, being responsible for regulating a nation's monetary base and controlling the amount of money in circulation and in print. Central banks usually operate apolitically, and are endowed with powers to supervise a county's financial sector and prevent unscrupulous or fradulent activity being committed by private banks and financial institutions.

The term 'central bank' is a general one, that applies to the role of most state-owned financial entities (such as the Bank of England, the European Central Bank, or the U.S. Federal Reserve System) however some countries have state-owned banks who's functions also include peripheral objectives such as financing imports/exports or may even include goals such as industrial development or national employment.

Monetary Policy-
Monetary policy is the term applied to the means by which a central bank controls the supply of money and manipulates the rate of interest to encourage economic stability and growth, usually targeting specific goals such as low unemployment and stability in prices. Monetary policy is usually described as being either expansionary or contractionary. An expansionary policy sets out to lower interest rates and increase the supply of money, which results in credit being more readily available in the hope that businesses will be encouraged to expand, and therefor recruit. This, in turn, should have a positive effect on employment levels.
A contractionary policy would be used to slow inflation down, with possible targets being the preservation of asset values in an economy.

Other Central Bank Functions-
As well as setting monetary policy, a central bank concerns itself with other important functions.
Encouraging and maintaining financial stability is high on a central bank's objective list, and there has been an especially keen focus and expansion on this remit in recent years, with the global financial crisis throwing many of the world's largest economies into a period of unprecedented turbulence.
A central bank also includes managing a country's reserves as one of it's responsibilities, essentially holding different currencies in its coffers to act as a buffer incase of currency fluctuation.
The Central bank also acts as a lender of last resort to the government, this means the central bank has the capacity to provide financial assistance to the government in times of difficulty. This is a role that almost all Central Bank's fulfill, with a notable exception being the European Central Bank.
Some central bank's also act as an overseer of financial market infrastructure, often having a hand in overseeing private companies that may have significant impact on a country's economy, such as a stock exchange. 

Rabbia Pasha Profile
Rabbia Pasha 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.
Anonymous Profile
Anonymous answered

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(3) Price

(4) Distribution

Karl Sagan Profile
Karl Sagan answered

Hi everybody. I don't know, I've never been very interested in it. At one time I even wanted to work in the central bank, but then I realized that it was easier for me to read the forex options broker review and engage in trading because it brings me much more pleasure and besides, it is an excellent passive income for me.

Nouman Umar Profile
Nouman Umar answered
Central bank is the top national institution its chief responsibility is to regulate the flow of money and credit in the country. It seeks to provide monetary conditions favorable to the realization of national objectives, stable prices, steady economic growth, higher employment and a sound international financial position. The important functions of the central bank are as follows:-

Sole right of note issue:
The printing and issue of currency notes is one of the important functions of central bank. The right of note issue is regulated by law, the requirement of the business and in the best interest of the country. The main advantage of giving the monopoly rights of note issue to the central bank are as under:-

• It brings uniformity in the system of note issue.
• The central bank can exercise better control over the money supply in the country.
• It increases public confidence in the monetary system of the country.
• It enables central bank to control the lending operations of the commercial banks.

Banker agent and advisor to government:
The central bank acts as banker agent and adviser to government. As banker to government, it receives deposits cheques and drafts deposited in the government account. So there are many other functions performed by the central bank.

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