CONCEPT OF CENTRAL BANK:

According toR.P.Kent, Central bank is an

institutioncharged with the responsibility of
managingthe expansion and contraction of
the volumeof money in the interest of the
general public
welfare.The essential feature of a central bank is itsdiscretionary control over the
monetarysystem of the country. The central bank alsoacts as the leader of the money
market and inthat capacity; it supervises, controls andregulates the activities of the
commercialbanks. A bank is called as a central bankbecause it occupies an important
position inthe monetary and banking structure of thecountry in which it operates. Thus,
the centralbank is an institution whose main function isto help, control and stabilize the
monetaryand banking system of the country in thenational economic interest.According to
W.A.Shaw, the central bank

Central Bank Meaning and FunctionsMeaning:

In every country, there is one apex institution which acts as theleader of the money market. In
supervises, regulates and controls areactivities of commercial banks and other financial institutions. Such
aninstitution is called as the central bank of the country. In India, RBI acts as acentral Bank of
the country.
Functions:
De Kock has mentioned seven important functions of a centralBank. They are:
1.
Bankof Issue:
It is the primary and very important function of a centralBank. Now a days central Bank in every
country has been given the soleright of note-issue. In ancient times issue of currency metallic coins
usedto be exclusive privilege of the ruler as a matter of fact, circulation of currency
determined the title of a particular ruler or king over theterritory. The coins used to serve as the seal
of the king with the issue incirculation of paper currency notes, this right came to be concerned
withthe state. Paper notes were put in circulation in place of metallic coinsand were declared
unlimited legal tender, i.e. paper notes acquired legalauthority to be accepted as means of
payments in all the transactions.Gradually, however it was realised that the concentration of the right
of note issue with the state renders the currency unstable. The state couldalways resort to
over-issue of currency notes for meeting its financialneeds.Consequently, the function of note
issue came to be performed by thebanks. Presently, in almost all the countries in the world, the right
of note-issue is the monopoly of the central bank.
2.
Banker, Agent and Financial Advisor to the Govt .:

As banker to thegovt. the central Bank makes and receives payments on behalf of thegovt. It helps the
govt. With short-term loans and advances in times of difficulties.As govt. agent, the Central Bank also
acts as advisor to the govt. speciallyon monetary, banking and financial matters.
3.
Banker to the Banks:
The Central Bank bears the same relationship tothe commercial banks as the commercial
banks maintain with the generalpublic. The central banks acts as the bankers bank. The
commercialbanks deposit their surplus cash reserves with the Central Bank andsimilarly borrow
from the central bank when the need arises. In theearlier times smaller commercial banks used to look
upon their bigbrothers for this type of services.Gradually, as the relatively big banks began to
act as banks of issue andgovts bankers, the commercial banks began to look upon the as their
bankers. The cash reserves of the commercial banks came to becentralized with the central
bank.
4.
Custodian of Foreign Exchange Balances of the country :
Thecentral Bank performs two major functions in the field of foreignexchange:
(a)
It has become the custodian of the countrys reserves of international currencies, and
(b)
The maintains stability of the exchange rate of the currency.All the foreign exchange transactions of a
country are routedthrough the central bank of the country. All the expenses in foreigncurrency
whenever required are incurred though the agency of thisbank. Similarly, all foreign exchange
earnings have to be depositedwith the central bank.
5.
Lender of the Last Resort :
As commercial banks lend to theindividuals, the central bank lends to the commercial banks in times
of emergencies. Thus the central bank assumes the responsibility of meeting directly or indirectly all
reasonable demands for funds bycommercial banks in times of difficulties and crisis. A commercial
bankcan borrow from the central bank against eligible securities.
6.
Bank of central Clearance:
Economists lie shaw, willis and Jaunceyconsider the function of a clearing house as the most important
functionof the central bank. Because Central bank keeps the cash balance of allcommercial
banks, it is easier for member banks to adjust their claimsagainst each other in the books of the
central bank. This system of clearing agreements facilitates transfer of funds quickly safely
and at low cost