Functions of the Central bank
- Banker to the government. It keeps government funds and cash balances. It also carries out transactions on behalf of the government and it acts as a financial and economic adviser to the government.
- Monopoly of issuing legal tender notes and coins. The central bank has the sole right of issuing, printing and renewing legal tender coins and notes of the country.
- The lender of last resort to commercial banks. This means that in case of financial problems, the central bank provides liquidity (money) to commercial banks and other financial agents when they have failed to get money from other sources.
- Banker to commercial banks. The central bank accepts deposits from commercial banks and it acts as a clearing house for commercial banks, that is, they settle their debts through the central banks.
- It controls credit (money supply) in the economy. The central bank regulates the amount and availability of credit in the economy. This helps to ensure economic stability.
- It is the manager and custodian of foreign currencies. It is the task of the central bank to maintain a stable foreign exchange rate so as to maintain the value of the domestic currency.
- It helps to formulate and execute the monetary policy so as to influence the level of economic activity.
- It supervises and examines the activities of all commercial banks so as to promote sound commercial banking. It also advises them on issues like closing time, opening of branches, lending policies etc.
- Banker to International Institutions. The Central bank keeps funds of International institutions working in the country for example IMF, World Bank, and Red Cross etc.
- It controls the activities of foreign banks operating within the country. Such activities may not be in line with the national development strategy of the country for example profit repatriation.
11. It regulates the country’s balance of payment position through the management of external debt.
CATEGORIES Economics
TAGS Dr. Bbosa Science
