Central bank functions-custodian of member cash reserves , Managerial Economics

Custodian of Member Banks Cash Reserves

As bankers bank the central bank performs several function. It keeps the cash reserves of commercial banks in the economy and thus acts as custodian of the ultimate reserves of the country which support its credit and banking system. The other banks keep their deposits with the central bank. The central bank discounts the bills of commercial banks making them available credit based on the ultimate reserves. It provides able and effective leadership to the banking system in the country. Other banks look it for guidance and direction a shaping their polices in accordance with its directions it effects centralisation of cash reserves of members banks in the country. The centralisation of cash reserves in the central bank is a source of great strength to the banking system of any country. Centralised cash reserves can at least serve as the basis of a larger and more elastic credit structure than if the same amount were scattered among the individual banks it is obvious that when bank reserves are polled in one institution which is moreover charged with the responsibility of safeguarding the national economic interest such reserves can be employment to the fullest extent possible and in the most effective manner during periods of seasonal strain and in financial crises or general emergencies.

Posted Date: 12/1/2012 6:49:17 AM | Location : United States

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