Question

Briefly discuss the following functions of central bank: (i) Currency Authority; (ii) Banker to the Government; (ill) Banker's Bank and Supervisor.

Answer 1

(i) Currency Authority: Central banks have monopoly rights of issuing notes. This is called currency authority function of central banks. All notes issued by the central bank are an unlimited legal tender in a country.

(ii) Banker to the Government: Central bank is a banker, agent and financial adviser to the government. It manages the account of the government, it buys and sells the securities of the government and it frames policies to regulate the money market.

(iii) banker's bank and supervisor - central bank is also known as banker's bank. As it is a banker, agent and financial adviser to the bank. It manages the account of the other commercial banks, provide the banks with cash at the time of immediate cash crunch and it frames policies to regulate the money market.