Note on Central Bank

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Nepal Rastra Bank
Nepal Rastra Bank

The central bank is the apex bank in a country. The central bank is a supreme banking institution which involves in controlling, supervising and regulating the activities of the commercial bank and other financial institutions. It is service motive bank of a nation. Nepal Rastra Bank is the central bank of Nepal. It is the bank of banks. It receives incomes and pays expenditure on behalf of the government. It is the bank, which issues currency, controls the credit, exchanges foreign currencies, provides banking services and performs agency functions on behalf of the government. It takes deposits from commercial banks, provides instructions on banking business and acts as the lender of the last resort to them.

The following are some of the important definitions of the central banks: -

“Central bank may be defined as an institution which is charged with the responsibility of managing, expansion and contraction for the volume of money in the interest of the public welfare.” – Prof. R. P. Kent

“The central bank stands to the member banks in exactly the same relation as the member banks themselves to the public.” – Crowther

“The central bank is to act as the lender of the last resort,” – Hawthrey

“A bank which constitutes the apex of the monetary and banking structure of its country, is called a central bank.” Dr. D. Kock

Functions of Central Bank

  1. Issues notes and coins
    Notes Issiung
    Note Issuing

    The Central bank of any country has single right to issue notes & coins in the country. Nepal Rastra Bank in our country issues paper notes & coins and circulates throughout the country it is one of the major function of the central bank. At least 50% security of gold, silver, dollar and other government security should be deposited in World Bank while issuing notes in the country.

  2. Working as the government's bank
    The Central bank is the bank of the government. It accepts the government deposit and disburses payments. It also transfers the government’s money from one place/office to another as per the instruction of the government.

  3. Working as the banker of other banks
    The central bank has the sole right to give permission to establish banks in the country. The other banks conduct their activities within the framework of the banning policy formulated by Central Bank. In this sense, it is the father of other banks, which gives birth to them. It directs other banks for the acceptance of the deposit, granting loan and credit, paying or charging interest, etc. It also gives permission to other banks to conduct their activities by keeping security deposit from them, providing credit facilities and financial and administrative assistance as per the rules and regulation. Thus, Central Bank is the banker of other banks.

  4. Management of credit
    Capital is the basic source for the business and industries. Central Bank avails capital in terms of credit through the commercial and development banks. But when excess credit facilities are granted, inflationary problems may arise. So it again contacts credit by instructing the banks to draw back the money from the organizations in time, limiting credit grants and even taking actions against the banks not following the rules and regulations strictly.

  5. Management of foreign currency
    Foreign Exchange
    Foreign Exchange
    The central bank has the monopoly right to manage and exchange foreign currency. It determines the value of a national currency with that of the foreign currencies at the instruction of the government. It is the custodian and manager of the country’s reserves of the foreign currencies.

  6. Developing banking system
    The central bank encourages the individuals and institutions for the establishment of banking institutions. It keeps the certain deposit as per the rules and instructs the banker to operate their activities for the upliftment of back-warded society so that the national economy can be strengthened by activating all the economic sectors.

  7. Mobilization of capital and management of public debt
    Central bank manages the public debt for different development and administrative works. It collects such debt from the general public and different organization by issuing treasury bills and development bonds. It helps to raise short-term and long-term capital and mobilize in the development work.

  8. Makes monetary policies
    The central bank makes monetary policy for the nation. It collects and analyzes the various kinds of monetary information and formulates monetary policies.

  9. The lender of last resort
    The central bank is the apex body of financial institutions. If other banks and financial institutions are in financial crisis, the central bank provides a loan to them as lender of last resort. It fulfills the financial demands of banks and financial institutions at the time of emergency. Central bank grants a loan to other banks and charges interest.

  10. Other functions
    Besides the above functions, central bank acts as the custodian of the cash reserve of other banks, provides loan to them against securities, dealing with the foreign countries, works as the last lender and gives necessary information to the government about the monetary position of the country.

  • The central bank is the apex bank in a country.
  • The central bank is a supreme banking institution which involves in controlling, supervising and regulating the activities of the commercial bank and other financial institutions.
  • Central bank manages the public debt for different development and administrative works.
  • Central bank has the sole right to give permission to establish banks in the country. 
.

Very Short Questions

The central bank is the apex bank in a country. The central bank is a supreme banking institution which involves in controlling, supervising and regulating the activities of the commercial bank and other financial institutions. It is service motive bank of a nation. Nepal Rastra Bank is the central bank of Nepal. It is the bank of banks. It receives incomes and pays expenditure on behalf of the government

According to Hawthrey, “The central bank is to act as the lender of the last resort.”

According to Dr. D. Kock, “A bank which constitutes the apex of the monetary and banking structure of its country, is called a central bank.” _ Dr. D. Kock

From the above definition, it is clear that the central bank is the bank, which issues currency, controls the credit, exchanges foreign currencies, provides banking services and performs agency functions on behalf of the government. It takes deposits from commercial banks, provides instructions on banking business and acts as the lender of the last resort to them.

The following are the main functions of central bank:

  1. Issues notes and coins
    The Central bank of any country has single right to issue notes and coins in the country. Nepal Rastra Bank in our country issues paper notes and coins and circulates throughout the country it is one of the major function of the central bank. At least 50% security of gold, silver, dollar and other government security should be deposited in World Bank while issuing notes in the country.
  2. Working as the government's bank
    The Central bank is the bank of the government. It accepts the government deposit and disburses payments. It also transfers the government’s money from one place/office to another as the instruction of the government.
  3. Working as the banker of other banks
    The central bank has the sole right to give permission to establish banks in the country. The other banks conduct their activities within the framework of the banning policy formulated by Central Bank. In this sense, it is the father of other banks, which gives birth to them. It directs other banks for the acceptance of the deposit, granting loan and credit, paying or charging interest, etc. It also gives permission to other banks to conduct their activities by keeping security deposit from them, providing credit facilities and financial and administrative assistance as per the rules and regulation. Thus, Central Bank is the banker of other banks.
  4. Management of credit
    Capital is the basic source for the business and industries. Central Bank avails capital in terms of credit through the commercial and development banks. But when excess credit facilities are granted, inflationary problems may arise. So it again contacts credit by instructing the banks to draw back the money from the organizations in time, limiting credit grants and even taking actions against the banks not following the rules and regulations strictly.
  5. Management of foreign currency
    The central bank has the monopoly right to manage and exchange foreign currency. It determines the value of a national currency with that of the foreign currencies at the instruction of the government. It is the custodian and manager of the country’s reserves of the foreign currencies.
  6. Developing banking system
    The central bank encourages the individuals and institutions for the establishment of banking institutions. It keeps the certain deposit as per the rules and instructs the banker to operate their activities for the upliftment of back-warded society so that the national economy can be strengthened by activating all the economic sectors.
  7. Mobilization of capital and management of public debt
    Central bank manages the public debt for different development and administrative works. It collects such debt from the general public and different organization by issuing treasury bills and development bonds. It helps to raise short-term and long-term capital and mobilize in the development work.
  8. Makes monetary policies
    The central bank makes monetary policy for the nation. It collects and analyzes the various kinds of monetary information and formulates monetary policies.
  9. The lender of last resort
    The central bank is the apex body of financial institutions. If other banks and financial institutions are in financial crisis, the central bank provides a loan to them as lender of last resort. It fulfills the financial demands of banks and financial institutions at the time of emergency. Central bank grants a loan to other banks and charges interest.
  10. Other functions
    Besides the above functions, central bank acts as the custodian of the cash reserve of other banks, provides loan to them against securities, dealing with the foreign countries, works as the last lender and gives necessary information to the government about the monetary position of the country.

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  • A supreme banking institution which involves in controlling, supervising and regulating the activities of the commercial bank and other financial institutions is called ______.

    none of the options are correct
    development bank
    commercial bank
    central bank
  • The central bank is the _____ bank in a country.

    recent


    contemporary


    latest


    apex


  • "Central bank may be defined as an institution which is charged with the responsibility of managing, expansion and contraction for the volume of money in the interest of the public welfare." Whose saying is this?

    Crowther


    A. W. Hanson


    Prof. R. P. Kent


    R. K. Mautz


  • "The central bank stands to the member banks in exactly the same relation as the member banks themselves to the public." Whose saying is this?

    Crowther
    Prof. R. P. Kent
    Montgomery
    R. K. Mautz
  • Which one of them is the function of central bank?

    Working as the banker of other banks
    All the options are correct
    Management of credit
    Issuing notes and coins
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