Explain any two functions of a central bank.
Explain any two functions of a central bank.
Two functions of a central bank are as follows:
(i) Bank of issue: This means that the Reserve Bank of India has the sole right to issue currency notes. The main reasons as to why the monopoly power of note issue is given to central banks is:
• It leads to uniformity in notes circulation.
• It gives the central bank direct control over the money supply.
• It ensures public faith in the currency system.
(ii) Banker to the government: Central bank is the banker, agent and financial advisor to the government. As a banker to the government, it carries out all banking businesses of the government. As an agent to the government, it buys and sells securities on behalf of the government. As a financial advisor, the central bank advises the government from time to time on economic, financial and monetary matters.
Two functions of a central bank are as follows:
(i) Bank of issue: This means that the Reserve Bank of India has the sole right to issue currency notes. The main reasons as to why the monopoly power of note issue is given to central banks is:
• It leads to uniformity in notes circulation.
• It gives the central bank direct control over the money supply.
• It ensures public faith in the currency system.
(ii) Banker to the government: Central bank is the banker, agent and financial advisor to the government. As a banker to the government, it carries out all banking businesses of the government. As an agent to the government, it buys and sells securities on behalf of the government. As a financial advisor, the central bank advises the government from time to time on economic, financial and monetary matters.
