What is Central Bank? | Role of Central Bank in India

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What is Central Bank?

The Central Bank is the apex or top bank in a country. Central Bank is the guardian of all financial institution working in the economy. In every country there exists one Central bank which manages and control the monetary system of the country.

Role of Central bank in developing countries

In the developing countries, the Central bank has to play a much wider role. Besides performing the traditional function, the Central Bank has to undertake responsibility of economic growth with stability in these economics. The following are the important developmental and promotional function of the Central Bank in the developing countries.

• Traditional function- The central bank in the developing countries perform traditional role such as the monopoly of note issue, acting as banker to govt. serving as bankers bank, controlling and regulating the credit etc. This was one of the important role of central bank in India.

• Economic growth- The central bank in the developing countries should aim at promoting the process of economic growth. Economic growth requires sufficient financial resources. The central bank can ensure adequate the monetary expansion in the country.

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• Internal Price Stability- The central bank should also attempt to maintain the internal price stability. The developing countries are respectable to inflationary pressures. The central bank should adopt such a monetary policy that can control inflationary tendencies and ensure price.

• Development of banking system-The central bank should not only take measures to develop an integrated commercial banking system, but also should not take undertaking directly in the commercial banking functions.

• Branch expansion- In the developing countries, the commercial banks generally expansion their branches in the urban areas. In order to extend credit facilities to the agricultural sector, the central bank should prepare programme for branch expansion in the rural areas.

• Development of financial institution- Development of lending sector of the economy such as agricultural, industry, foreign trade, etc, requires long term finances. Hence the financial institutions should be established by the central bank.

• Training facilities- A major difficulty in developing the banking system in developing is the lack or trained staff. The central bank can provides training facilities to meet the personal requirements of the bank.

• Proper interest rate structure- The central bank can help in establishing a suitable into rate structure to influence the direction of investment in the country. Again by adopting different interest rates the central bank increases productive investment.

Essential Function of Central Bank

The following are some of the important functions of Central Bank-

What is Central Bank? | Role of Central Bank in India

• Currency issue- Issue of currency is one of the most important functions of the central bank. The central bank is entrusted with sole authority to issue roles in the country, thus central bank enjoyed the monopoly power in the respect of note issue.

• Banker’s Bank- Central bank is working as a banker of all other banks in the economy. It works as a custodian of the cash reserves of all other number of banks of the country. The central bank of India also lending money to other banks.

• Banker’s of all government- The third important function of the central bank is that it acts as a bankers of the govt. The central bank keeps all balances of the govt of the country and also manages the public debt. It also advances short term loans to the govt.

• Credit control- The central bank controls the bank total volume of credit created by the commercial bank of the country through the regulation and control of bank advances. The central bank can control the total volume of credit control.

• Exchange control- The central bank maintain the external value of the currency of the country by determining the rate of foreign exchange. The central bank also maintain the foreign exchange reserve of the country.

• Development country- Now a days the central bank also perform some developmental function of the country. The central bank of India is providing agricultural and industrial finance by developing certain organization like- NABARD and IDBI etc. more over the central bank advices the government in respect of monetary and economic policies of the country.


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