Functions of the Central Bank
Central Bank acts as a controller of money market and thus provides services towards the government, public and other banks and overall acts as a development body of the country.
General Functions
1. Notes and currency circulation: Responsibility of circulating the money and currency is only vested upon central bank.
2. Guardian of the money market: Central Bank acts as a guardian and controller of the money market.
3. Creation of easy medium of exchange: This bank creates easy medium of exchange like currency, bill, hundi, etc.
4. Credit control: One of the main functions of this bank is controlling the credit. Bank Rate policy, Open Market Operation, deposit rate, etc. are the different mechanisms of credit control.
5. Controls the purchasing power of currency: By increasing and decreasing money supply, central bank maintains the currency value in the country.
6. Controls foreign exchange: Central Bank controls the exchange rate and preserves prestigious value of home currency.
7. Maintains stability in price level: By controlling money supply, central bank maintains stability in price level.
8. Maintains foreign currency reserve: Exchange rate of any country depends on the foreign currency reserve. So Central Bank preserves necessary amount of foreign currency.
9. Development of banking: Central Bank is responsible to develop the infrastructure of total banking sector.
10. Creating employment opportunity: By approving and permitting to open different branches, central bank creates opportunity for employment.
11. Monitoring Govt. loan: On behalf of the government, Central Bank monitors the uses and repayment of loan given by the government.
Functions as a government bank
1. Source of credit: In financial crisis, government collects fund from Central Bank. So this bank is a source of government fund.
2. Maintaining Government Fund: Central Bank maintains government's fund, assets, and documents.
3. Maintenance of accounts: Central Bank maintains different accounts of the government.
4. Handling of government transaction: Central Bank provides supports in handling government documents.
5. Purchase and sale of foreign currency: On behalf of the country, central bank purchases and sells home currency and foreign currency.
6. Advisor: Central Bank acts as an advisor by involving in planning, policy making and implementing.
7. Collection and maintenance of information and statistics: Central Bank collects, coordinates and maintains different information and statistical data and reports in taking some plans.
8. International relationship: Central Bank helps to build relationship of government with the international financial organizations, foreign banks and other different foreign institutions.
9. Representative of government: Central Bank conducts different activities in home country and in foreign country as a representative of the government.
Banker of the other banks
1. Approving and scheduling: Central Bank does the activities of approving and scheduling the establishment of new banks.
2. Opening new branch: This bank provides approval for opening a new branch.
3. Clearing House: Central Bank resolves different inter-banking transactions through cleaning houses.
4. Lender of the last resort: At the time of financial crises when fund cannot be collected from anywhere, Central Bank extends its financial support. So central bank can be called as Lender of the Last Resort.
5. Controlling the activities of the commercial bank: According to the rules, regulation and policy, Central Bank controls the activities of commerical banks.
6. Examine the banks: Central Bank examines the accounts of the commercial banks.
7. Advisor and consultant: Central Bank provides different advice and consultancy related with banking issues to the commercial banks.
8. Statutory reserve: All scheduled banks are bound to retain specified portion of their total deposit to the central bank.
9. Representative of other banks: Central Ban is the representative of all scheduled banks.
10. Recovery of loan: This bank provides support in loan recovery of scheduled banks.
11. Development in international trade: For the expansion of international trade, central bank provides different support to the commercial banks.
Other Functions
1. Development in agriculture: For the purpose of development in agricultural sector, central bank establishes agricultural bank under its direct supervision and makes arrangement to pay loan at low interest rate.
2. Industrial Development: Central Bank extends its cooperation to the government in forming motivational plan and its implementation for the development of industrial sector.
3. Development of co-operative bank: Central Bank takes different initiatives for the development of co-operative banks.
4. Research based activities: To introduce different ways, policies, methods for the development of trade and commerce, this bank conducts many research activities.
5. Ensuring the utilization of loan: Another main responsibility of central bank is to ensure the proper utilization of floated loan.
