Functions of central bank , Managerial Economics

FUNCTIONS OF CENTRAL BANK

Economists and financial experts lack in unanimity about the functions of a central bank. According to Kisch and Elkin, the essential function of a central bank is the maintenance of the stability of the economy standard. While for Shaw it consists in the control of credit. De Kock has removed the confusion by mentioning the following seven function of a central bank in his well known book central bank banking. According to him a central bank is a

1.Bank of issue.
2.Banker, agent and financial adviser to government.
3.Custodian of member banks cash reserves.
4. Custodian of nation foreign exchanges reserves.
5. Lender of last resort.
6.Bank of central settlement and transfer acting a clearing house.
7.Controller of credit.

The functions of a central bank are different from those of commercial bank. Firstly, a central bank is established for public service rather than for private profit. Unlike commercial bank is, its operations are not basically guided by profit motive. Secondly a central bank has special relationship with the government of the country . since the central bank acts as the banker to the government , the latter informally influences its activity. Thirdly a central bank generally does not deal directly with the public. It deals with the public indirectly through the commercial banks and the money market. It does not accept deposits from the public as doing so would amount to usurping the usual banking function of the commercial banks. This is not, however, to deny that many central bank conducted commercial banking business in the beginning of their career. In fact almost without exception central bank before 1914 engaged in their regular commercial banking business with the general public and in some cases on a very substantial scale. With a wide network of branches throughout the country. This brought these banks into some measure of direct competition with the commercial banks. Concern for earnings moreover, all too often coloured their operations and policies to the detriment of their central banking responsibilities the bank of England being a good case in point. In this connection, it is pertinent to state that virtually all the central banks before 1914 were privately owned.

Posted Date: 12/1/2012 6:36:59 AM | Location : United States







Related Discussions:- Functions of central bank , Assignment Help, Ask Question on Functions of central bank , Get Answer, Expert's Help, Functions of central bank Discussions

Write discussion on Functions of central bank
Your posts are moderated
Related Questions
A chemical producer dumps toxic waste into a river. The waste decreases the population of fish, decreasing profits for the local fishing industry by $100,000 per year. The firm cou

Effectiveness of Trade Unions in Developing Countries Trade Unions in developing countries tend to be less effective in their wage negotiations with employers than their count

The demand curve for the product of a monopolist is a straight line such that quantity just falls to zero at a price of Rs 20 per unit and that the maximum quantity (at zero price)

The nature and function of money The development of money was necessitated by specialization and exchange.  Money was needed to overcome the shortcomings and frustrations of t

SHORT RUN OUTPUT AND PRICE In monopolistic competition, it's the product differentiation that permits its price without losing sales.  Due to brand loyalty consumers will c

Problem 1: You are the manager of a reputed five star hotel in Mauritius and you have been asked by the director of the hotel to advise on possible pricing strategies to increa

Consider a magnetic disk consisting of 16 heads and 400 cylinders. This disk is divided into four 100-cylinder zones with the cylinders in different zones containing 160, 200, 240,


Keynes Theory Keynes views about trade cycle entitled notes on the trade cycle of his classic the general theory of employment interest and money published in 1936. Although K

AGGREGATE DEMAND This refers to the total planned or desired spending in the economy as a whole in a given period. It is made up of consumption demand by individuals, planned