Question

Explain the function of a Central Bank as a banker to the government.

Answer 1

The Central Bank acts as a banker to both Central and State Governments. It carries out banking business of the government and the government keeps its cash balances on current account with the Central Bank. It issues loans and advances to the government and does buying and selling of securities on behalf of government. It also advises the government to frame monetary policy of the country to control the credit creation and money market.