question_answer

Explain the following functions of the central bank:

(i) Bank of issue

(ii) Banker's bank

Answer:

(i) Bank of issue: Bank of issue refers to the legal right to issue currency. The central bank enjoys complete monopoly of note issue. Tills ensures about uniformity note circulation. At the same time, it gives the central bank power to influence money supply because currency with public is a part of money supply.

(ii) Banker's bank: Central bank is the bank of banks. This signifies that it has the same relationship with commercial banks in the country which commercial banks have with their customers. It keeps their required cash in reserve, provides them financial securities, gives them advice and discounts their bills and securities held by them. It also gives them loan in times of emergency.