Question

Which of the following functions of a central bank may potentially conflict with its monetary policy role?

1. Supervisor of the banking system.

2. Banker to the banking system

3. Manager of the national debt.

4. Banker to the government.

5. Issuer of currency.

• A. 1 and 4
• B. 1 and 3
• C. 2 and 4
• D. 1, 2 and 3

Answer 1

The correct option is B

1 and 3

Managing the national debt and supervising the banking system may tend to conflict. For example, if there is a situation of bad debt for the country which might want to clear off the debts, it could interfere with the smooth functioning of the banking system in terms of the restrictions in money supply in the economy.