Saturday, August 22, 2009

Central Bank

According to Prof. Shaw “Central Bank is an institution which controls credit”. While Prof. Hawtry says “The main function of Central Bank is that it should serve as a last resort for commercial banks”. In the words of R. P Kent “Central Bank is an institution which perform the function of expansion and contraction of money supply”. Prof. M. H De-Kock who wrote his esteemed book “Central Banking” defines central bank and its functions as
“Central Bank is a chief of money and banking system of a country. Therefore it possesses different types of powers to control money and banking of the country”. In this respect it performs the following functions.
1. To control money supply in such a way that the needs of business enterprises and general public could be met. For this purpose it has complete or partial monopoly over issuing of notes.
2. It provides the same services to the govt. which are provided by commercial banks to their customers.
3. It supervises the cash reserves of commercial banks.
4. It is a custodian of foreign exchange and gold reserves of the country.
5. It is bankers bank it discounts the bills of exchange serves as last resort of banks, particularly when they do not have any source to get the loan.
6. It settles the accounts between commercial banks.
7. It controls credit in accordance with the needs of the country that the monetary policy could effectively be used.
Keeping all these definition in view the central Bank may be defined as the apex banking and monetary institution whose main function is to control regulate and stabilize the banking and monetary system of the country in the national interest.

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