Central bank is regarded as an apex financial institution in the banking system. The central bank functions as an independent authority and is responsible for controlling, regulating and stabilising the monetary and banking structure of the country. In India, the Reserve Bank of India is regarded as the central bank.
What are the most important functions of the central bank?
Functions of Central Bank
- Issue money.
- Lender of Last Resort to Commercial banks.
- Lender of Last Resort to Government.
- Target low inflation.
- Target growth and unemployment.
- Operate monetary policy/interest rates.
- Unconventional monetary policy.
- Ensure stability of the financial system.
What is the function of central bank of India?
India’s central bank is known as the Reserve Bank of India (RBI). Its role is to foster financial stability and regulate India’s currency and credit. Founded in 1935, the bank sets monetary policy for the country. It is fully owned by the government of India and is run by a government-appointed board of directors.
Which is the most important function of a central bank?
Another most important function of central bank is that it acts as a banker to the state or government. It accepts cash deposits and cheques of the government and other incomes of the government like taxes etc and provides cash requirements for payment of salaries, wages and for their expenditure. It maintains the account of government.
How is the Central Bank an organ of the government?
According to Sayers, the central bank “is the organ of government that undertakes the major financial operations of the government and by its conduct of these operations and by other means, influences the behaviour of financial institutions so as to support the economic policy of the Government.”
Why is it important for a central bank to print money?
Printing money is also an important responsibility because printing too much can cause inflation. Lender of Last Resort to Commercial banks. If banks get into liquidity shortages then the Central Bank is able to lend the commercial bank sufficient funds to avoid the bank running short.
Why do central banks keep gold as a reserve currency?
After World War I, central banks have been keeping gold and foreign currencies as reserve note-issue and also to meet adverse balance of payment, if any, with other countries. It is the function of the central bank to maintain the exchange rate fixed by the government and manage exchange control and other restrictions imposed by the state.
