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Central Bank

    IndianMoney.com Research Team | Saturday, February 21,2009, 07:46 PM
 

A Central Bank or reserve bank, by definition, is the organization within a particular country or union of countries that regulates all of the currency supplies and related policies for that particular area. A Central Bank will perform various activities, but its most important job is to make sure that the national currency and money supply remain stable. Depending on the country, Central Banks may be government owned and controlled or may be run under regulations that are particularly created to prevent extensive government interference.

The specific functions of a Central Bank include different tasks. A Central Bank has responsibilities that include distribution of currency and implementation of monetary policy. Regulating the banking industry and setting official interest rates are also included in the jobs of the Central Bank. Some countries ask their Central Bank to be the government's bank and also a lender to smaller banks (lender of last resort), allowing them with sufficient fund during difficult times.

The central bank has been described as "the lender of last resort", which means that it is responsible for providing its economy with funds when commercial banks are not in a position to cover the supply shortage. In other words, the central bank stops the country's banking system from failing. However, the most important goal of central banks is to provide their countries' currencies with price stability by controlling inflation. A central bank also acts as the regulatory authority of a country's monetary policy and is the sole printer and distributor of notes and coins in circulation. Time has proven that the central bank can best function in these capacities by remaining independent from government fiscal policy and therefore unprejudiced by the political concerns of any authority. The central bank should also be completely divested of any commercial banking interests.

The Reserve Bank of India is the central Bank of India that is fully under the control of the Government. It is governed by a central board (headed by a Governor) appointed by the Central Government. It issues guidelines for the functioning of all banks operating within the country.

Functions of central bank

  • Issue of Bank notes
  • Controller of Credit
  • Accts as the Bankers' Bank
  • Acts as the Banker to Government
  • Lender of the Last Resort
  • Custodian of Foreign Reserves
  • Supervisory functions
  • Promotional functions

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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