List of functions of Central Bank, the central bank holds a significant position within the banking system, wielding substantial influence as the most powerful financial institution. It serves as a vital component of a nation’s economic and financial structure, assuming the role of an independent authority responsible for overseeing, regulating, and stabilizing the monetary and banking framework of the country. In the case of India, the Reserve Bank of India fulfills the role of the central bank, having been established in 1935. Central banks bear the responsibility of safeguarding financial stability and upholding the economic sovereignty of the nation, undertaking measures to ensure a robust financial system and maintain control over monetary affairs.
A central bank is a financial institution granted the exclusive authority to create and distribute currency (along with credit) for a nation or a collective of nations. In today’s economy, the central bank assumes additional responsibilities such as regulating member banks and devising monetary policies. The complete list of functions of central bank with description is given below.
List of Functions of Central Bank
| S.No. | Function | Description |
|---|---|---|
| 1 | Currency regulator or bank of issue | Responsible for regulating and issuing the nation’s currency. |
| 2 | Bank to the government | Serves as the government’s primary banking institution, managing its accounts and facilitating financial transactions. |
| 3 | Custodian of Cash reserves | Holds and safeguards the country’s cash reserves, ensuring their security and liquidity. |
| 4 | Custodian of International currency | Manages the nation’s holdings of international currencies, such as foreign exchange reserves. |
| 5 | Lender of last resort | Provides emergency liquidity assistance to financial institutions during times of financial instability or crises. |
| 6 | Clearing house for transfer and settlement | Facilitates the efficient transfer and settlement of funds between banks and other financial institutions. |
| 7 | Controller of credit | Regulates and controls the availability, cost, and terms of credit in the economy to manage inflation and promote economic stability. |
| 8 | Protecting depositors interests | Safeguards the interests of depositors in banks and financial institutions, ensuring the stability and soundness of the financial system. |
Eight Major Functions of Central Bank in an Economy
The functions of a central bank can be outlined in the following manner:
Here’s the information presented in an HTML list format:
- Currency regulator or bank of issue: Central banks possess the exclusive right to manufacture notes in an economy. They issue currency to ensure uniformity in circulation and balanced money supply.
- Bank to the government: Central banks act as the government’s bank, accepting deposits, making payments, and providing short-term loans to aid the government in economic recovery.
- Custodian of Cash reserves: Central banks serve as the banker’s bank, where commercial banks keep a portion of their cash balances. They also play a role in credit creation policies of commercial banks.
- Custodian of International currency: Central banks maintain minimum balances of foreign currency to manage emergency foreign reserve requirements and address balance of payment deficits.
- Lender of last resort: Central banks provide funds to member banks during cash crunches, protecting the financial structure of the economy.
- Clearing house for transfer and settlement: Central banks act as a clearing house, facilitating settlement of interbank payments among commercial banks.
- Controller of credit: Central banks regulate credit creation by commercial banks through open market operations and changes in reserve requirements to control inflation.
- Protecting depositors interests: Central banks oversee the functioning of commercial banks to safeguard depositors’ interests.
Roles and Objectives of Modern Central Banks PDF
Download pdf file of Central banks roles and objectives from below link.
https://www.bis.org/publ/othp04_2.pdf
Read :
List of Small Finance Banks and Payments Banks in India