Goverment Banker, Fiscal Agent and Adviser
Central banks in all countries acts as the fiscal agent, banker and adviser on all important financial matters to government of their countries. In fact the other banks charters were function even before they assumed the name and role of central bank. Bank charters were granted in exchange for loans. We are today by Adam smith that the earliest banks of Italy. Where the name bank began were r finance companies. These were established to make loans to and float loans for the government of the cities in which they were established. Alfred Marshall also writes that famous early banks like the bank of Amsterdam acted as fiscal agents for the government. As government bankers the central bank conducts the government in anticipation of collection of taxes or the raising of loans from the public. For example in Germany the Reich bank made three month loans to the government by discounting treasury bills in anticipation of public loans to be floated every six month to finance the war of 1914-18. The central bank also makes extraordinary advance to government during depression, war or other national emergencies. It conducts transactions on half of the government involving the purchases or sales of foreign currencies. Besides these services, the central bank also performs various other services such as to act as the financial agent of the government. It acts generally as financial adviser to the government. It manages nations debt and gives the much sought after advice to the government on important maters of economic policy, such as the extent to which deficit financing may be resorted to by the government for accelerating economy planned economic development without inflation devaluation of the currency, foreign trade policy, etc. In India the reserve bank of India has advised the government of India on various important economic policy matters including the stability of prices, funding of the national debt. Amount of deficit financing which the economy can absorb etc. during the past five decades.