Functions of Central Bank Class 12 Economics , What are the Functions of Central Bank , Explanattion , Importance

Function of the Central Bank Class12 Economics

This article will help you to understand the Concept of Central Bank and it's functions in a easy and effective manner. Of Class 12 Macroeconomics 

Unit : Money and Banking

Functions it perform as an 'apex' body in any economy.

After reading the article you will be able to answer the following questions :

What is Central Bank?
Meaning of Central Bank?
Role of central Bank?
What are the functions of Central Bank?

 

Let's first understand What is a Bank?

 "Bank is an organisation whose principal operations are concerned with the accumulation of the temporary Idol money of the general public for the purpose of advancing it to others for expenditure in any economy"

 

Central Bank :

A central bank is it top most and epics institution in any country which operates, controls, directs, and regulate the monetary and banking structure of the specified country, not only this Central Bank acts as a leader of the money market.

In India the Reserve Bank of India is the central bank of the country .

 

ROLE of Central Bank in Economic DEvelopment :

In any developing economy for example India the main objective of the central epics bank is to promote and indicate the economic growth of the particular country in these countries Central bank has two player double roll the first is to play the ROLE of CONTROLLER and the second to play the ROLE of a PROMOTER the main direction of the role of Central Bank in the developing economies are as explained under :

 

(          1)    Regulation and control of banking system:

It is the prime duty of the central bank to perform its traditional function of regulating and controlling the banking structure of the particular country

 

       (2) Promotional functions :

        Not only Central Bank performs the activity of controlling and regulating the banking system but            also helps in the promoting function and the expansion of the banking structure of the country

 

Central Bank

        (3) Developmental functions :

         In regard of the developing country the central bank take measures to strengthen the financial                 structure to promote Savings and capital formation , to arrange finance at concessional rates for               the primary sector and likewise for the other sectors in the economy

 

 

Let us Now discuss 

 The FUNCTIONS of Central bank class 12  ( RBI)

 

Functions of Central bank class 12 

(1) Bank of Issue ( Currency Function)

It is the first and foremost important function of the central bank. These days Central Bank in every country has given the sole right and authority to issue currency note (except the one rupee note which are issued by the Ministry of Finance). This function gets such an importance that Central Bank has to be known as "Bank of issue".

The central bank three main consideration regarding issue of notes that is Uniformity, Elasticity and Safety the central bank tries to keep money growth within a target range and does keep inflationary pressure at a low level in the country.

 

(    2)    Banker ,agent and adviser to the government :

      In order to be the BANKER of the government the central bank makes and receive the payment on the behalf of the government both Central and the state governments .It helps the government with short term  and long term loans and advances in times of difficulties.

 As government AGENT it conducts sale and purchase of the government securities in the market and also manages the national debt as well as the foreign debt.

 It plays the role of the ADVISOR to the government by advising  especially on monetary, banking and financial matters.

 

(3) Custodian of cash reserves of the commercial banks:

All of the commercial banks are under the obligation to keep the part of their cash balances as a deposit with the central bank of the country .Thus it acts as a custodian of these Reserves.

 

(4) Bank of Central Clearance:

As it keeps some part of the reserves of all the commercial banks it is easier for member Bank to adjust their claims against each other in the books of the central bank does this system of clearing agreements facility transfer of funds quickly safely and a low cost under the central bank.

 
(5) lender of The Last Resort:

In case of an unforeseen emergency and the financial deficeit the central bank of the country works as a lender of The Last Resort for the commercial banks to help them get out of this unforeseen disadvantages.

 

(6) Controller of money supply and Credit:

Controlling of money supply and credit is the most important function of the central bank.

 Through this function the it helps to influence the money supply in the economy in both cases (the case of excess demand and the case of deficient demand).

  It can control inflationary and deflationary situations in the country through various credit control measures. These credit control measures are also termed as Instrument of monetary policy.