Explain any two functions of central bank.
Functions of Central bank are :
1. Issue of Currency:
The central bank is given the sole monopoly of issuing
currency in order to secure control over volume of currency and credit. These
notes circulate throughout the country as legal tender money. It has to keep a
reserve in the form of gold and foreign securities as per statutory rules
against the notes issued by it. It may be noted that RBI issues all currency notes in India
except one rupee note. Again, it is under the directions of RBI that one rupee
notes and small coins are issued by government mints.
2. Banker to Government:
Central bank functions as a banker to the government—both
central and state governments. It carries out all banking business of the
government. Government keeps their cash balances in the current account with
the central bank. Similarly, central bank accepts receipts and makes payment on
behalf of the governments. Also, central bank carries out exchange, remittance and
other banking operations on behalf of the government. Central bank gives loans
and advances to governments for temporary periods, as and when necessary and it
also manages the public debt of the country. Remember, the central government
can borrow any amount of money from RBI by selling its rupees securities to the
latter.
1. Issue of Currency:
The central bank is given the sole monopoly of issuing currency in order to secure control over volume of currency and credit. These notes circulate throughout the country as legal tender money. It has to keep a reserve in the form of gold and foreign securities as per statutory rules against the notes issued by it. It may be noted that RBI issues all currency notes in India except one rupee note. Again, it is under the directions of RBI that one rupee notes and small coins are issued by government mints.
2. Banker to Government:
Central bank functions as a banker to the government—both
central and state governments. It carries out all banking business of the
government. Government keeps their cash balances in the current account with
the central bank. Similarly, central bank accepts receipts and makes payment on
behalf of the governments. Also, central bank carries out exchange, remittance and
other banking operations on behalf of the government. Central bank gives loans
and advances to governments for temporary periods, as and when necessary and it
also manages the public debt of the country. Remember, the central government
can borrow any amount of money from RBI by selling its rupees securities to the
latter.
