The Concept of Central Bank | Objectives of the Central Bank

The Concept of Central Bank

During the 17th century, different kinds of banks were evolved in different regions; thus the money market controlling activity become most important activity. From this realization central bank was established. This bank couldn't leave money market in its own way rather it was liable to control the money market mechanism. At the very begining of the civilization, central bank used to do its responsibilities in currency circulation, money supply and credit control.

Objectives of the Central Bank

Central Bank is the non-profitable public welfare based national institution. Implementing welfare activities and strengthening the economy are the main responsibilities of central bank. The objectives of the central bank can be classified in following ways:

1. Strong money market formation and control: Main objective of the central bank is forming, monitoring and controlling and controlling the money market.

2. Economic development: Achieving economic prosperity through economic planning and implementation is the objective of the central bank.

3. Notes and Currency Circulation: According to the market demand, central bank circulates notes and currency and thereby preserves the currency value.

4. Controlling foreign currency: Central Bank controls the home currency value with the intention of creating positive balance of trade.

5. Maintains currency value: Central Bank controls the home currency value with the intention of creating positive balance of trade.

6. Banker of the other Bank: Central Bank plays important role in structuring and building the efficiency of scheduled bank and non-scheduled bank and thus it acts as a banker of the other banks.

7. Acts as a clearing house: Central Bank provides services to the commercial banks in the resolution of different exchange and maintains co-ordination with the commercial bank all over the country.

8. Credit Control: One of the important objectives of central bank is to provide enough credits to the commercial banks if any excess credit it provided. Then central bank has to ensure the financial market stability.

9. Gives advice to the Government: For the purpose of giving force in economic development of all internal and foreign aspects, central bank gives guidance and prepares plan and implements these.

10. Maintains price stability: Central Bank controls money supply to keep price level stable through applying different mechanism. Instability of price creates dull economy.

11. Bank of the government: Central Bank preserves money of the government and reconciles different transaction on behalf of the government.

12. Public welfare: As central bank is not a profit oriented company, it performs different social and national activities for public welfare.

13. Equal distribution of wealth: Central Bank is liable to invest in all sectors and in all regions which have positive impact in national and economic prosperity. Thus equal distribution of wealth ensures balanced development.

14. Facilitate capital formation: By providing credit facilities to commercial banks, central bank increases the ability of their borrowers for capital formation.

15. Establishing organization banking system: Organized banking system development is another function of this bank.

16. Guide of banking system: Guiding other banks of the country is one of the main activities of the bank.


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