2.20. Role of a central
bank
In developed nations, the central bank, conduct a wide range
of banking, regulatory and supervisory functions. They have a substantial
public responsibilities and abroad array of executive powers. Their major
activities can be grouped into five general functions:
Issuer of currency and manager of foreign
reserves
Central bank prints money, distributes notes and coins,
intervenes in foreign-exchange markets to regulate the national currency's rate
of exchange with other currencies and manage foreign assets reserves to
maintain the external value of the national currency.
Banker to the government
Central bank provides bank deposit and borrowing facilities to
the government while simultaneously acting as the government's fiscal agent and
under writer.
Banker to domestic commercial banks
Central bank also provides bank deposit and borrowing
facilities to commercial banks and act as a lender of last resort to
financially troubled commercial banks.
Regulatory of domestic financial
institutions
Central bank ensures that commercial bank and other financial
institutions conduct their business prudently and in accordance with relevant
laws and regulations. It also monitors reserve ratio requirements and supervise
the conduct of local and regional banks.
Operator of monetary and credit policy
Central bank attempts to manipulate monetary and credit policy
instruments (the domestic money supply, the discount rate, foreign exchange
rate, commercial bank reserve ratio requirement, etc) to achieve major
macroeconomic objectives such as controlling inflation. (Rose, 1993)
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