Question

Give reason or explain the following statement.
Central Bank has the safe pones of issuing currency notes.

Answer 1

Central bank has monopoly rights of issuing notes. This is called currency authority function of central banks. All notes issued by central bank acts as an unlimited legal tender in the country. Therefore, central bank has the sole power of issuing currency notes in the country. According to this principle central bank must issue currency against gold reserve or any kinds of reserve. The condition of the reserve is that the central bank can easily convert the reserves into cash at the time of urgent need. This principle is safer but create inelasticity.