Question

Explain 'bank of issue' function of central bank.

Answer 1

The central bank is the bank of issue. It has a monopoly of note issue. Notes issued by it circulate as legal tender money. It has its issue department which issues notes and coins to commercial banks.
Coins are manufactured in the Government mint but they are put into circulation through the central bank.
However, the currency issued by the central bank is its monetary liability. In other words, the central bank is obliged to back the currency issued by its asset of equal value such as gold, coins, and bullions.
In addition to issuing currency to the general public, the central bank also issues currency to the central Government of the country.