Functions/roles of central bank
- It issues currency, it is the only financial organ responsible for issuing and renewing all notes and coins in an economy and to make sure that there is no counterfeit money in the circulation.
- It designs money that is hard to counterfeit
- Banker, Agent and Adviser to the Government: Central bank, everywhere, performs the functions of banker, agent and adviser to the government. It keeps all government deposits and makes sure that it effects all payments due to both internal and external on behalf of government
- It advises government concerning financial matters
- It manages external debts
- It links the government or economy to other international financial institution notably the world bank and others
- It is a banker’s bank. All regal reserves requirements by banks are kept by the central bank
- Lender of Last Resort: Central bank is the lender of last resort, for it can give cash to the member banks to strengthen their cash reserves position by rediscounting first class bills in case there is a crisis or panic which develops into ‘run’ on banks or when there is a seasonal strain. Member banks can also take advances on approved short-term securities from the central bank to add to their cash resources at the shortest time.
- Clearing House: Central bank also acts as a clearing house for the settlement of accounts of commercial banks. A clearing house is an organisation where mutual claims of banks on one another are offset, and a settlement is made by the payment of the difference.
- It keeps country’s foreign exchange reserves.
- Protection of Depositors Interests: The central bank has to supervise the functioning of commercial banks so as to protect the interest of the depositors and ensure development of banking on sound lines.
- Implementation of the monetary policy: The essential job of central banks is to formulate monetary policy, which entails engaging in actions (like controlling interest rates and conditions of credit) to impact the amount of money supplyin the economy. The policy ensures price stability, protect the value of the native currency, maximise employment, and establish a long-term growth environment.
CATEGORIES Economics
TAGS Dr. Bbosa Science
