Functions of central bank

Functions of central bank Issue of currency. The central bank entrusted the responsibility f issuing currency. Central bank maintain certn amt of reserve of gold and foreign exchange. To support issue currency & to maintain its value. 2 typesCuurrency principle central bank is supposed to bank to back issue of currency equal amt of gold & foreign currency.

Banking principle like comm bank , the central bank keep certain % of gold & foreign currency for backing entire note issue. Under this of note issue with ltd amt of gold & foreign currency reserves, de central bank resorts to issue of more currency.

Act as a banker of govt.Central bank act as banker to govt by maintaining the a/cs of govt.revenue r received by central bank & payment also by central bank. when the expense of the govt exeeds its revenue central bank has to rescue govt. Govt go 4 market borrowing for long term requrmnts it needs central bank. Ass banker to govt central bank is able to provide govt financial assistance. Act as bankers bankCentral bank responsible for devoplmnt of banking industry in country. Central bank act as custodian of the comml banks. Comml banks r asked to maintain certn % of their deposit with central bank called as cash reserve. There is cordinal relatnship between comml bank & central bank. Money market in country could be strengthened when ther is healthy relatnship between comml bank & central bank. Insdead of compelling the comml banks , central bank give friendly advise regarding banking activities.Lender of last resortCentral bank is said to lender last resort when de comml bank approach during financial crisis. When a bank is exhausted all these avenues bank will have ni option but rely on central bank. Kind of a panic is created & during such situations central bank must save the comml bank by discounting de bill. This act of central bank is called lender of last resort.Arranges clearing house facilitiesClearing house is one which arranges the clearence of cheaques drawn on difft bank. Central bank has its branch in all big cities and these branches undertake clearing house operation. If central bank does not have branch , it deutes some other bank to undertake Clearing house oprtn. In clearing house chequ r handed to respective branches &nexxt day fate of chequ is informed to banks.when chequ is not returned to Clearing house it is implied that chequ is passed for payment , credit will be given by the bank to its coustomer.Custodian of foreign exchangeCentral bank ha the responsibility to maintain domestic value also foreign value currency. central bank recieves foreign currency not from govt also from other comml banks. Central bank performes not only the impt function of issuing currency also regulates supply & maintain values. Central bank supports govt in all its oprtn by providing adequate funds. Central bank is backbone of the economy & various economic activities revolve around the central bank. We can say that central bank functions almost the heart of the economy.