CENTRAL BANKING

ARSALAN AHMAD
BA.L.L.B (SELF - FINANCE)
1st YEAR
ECONOMICS ASSIGNMENT
ROLL NUMBER – 7

INTRODUCTION

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Central Bank is the supreme economic institution of the country which is
at the top of the financial and banking structure of that country. Central
Bank is the head of the money market which controls, manages and
supervises the actions of commercial banks of that specific country. It is
the main economic authority of the country, which makes and executes
economic policy. It also manages currency and credit policy of the
country. Central Bank is responsible for maintaining constancy and
economic growth of the country. Central Bank is supreme authority of
the note issue system in the country. In country like India which is under
- development country, it is helpful in economic growth.

HISTORY OF THE CENTRAL BANK

The Bank of England and The Swedish Rikas Bank were the first
modern central banks which were built in the 17th century. Napoleon’s
Bank of France and Germany’s Reich Bank are other central banks
which were built in starting era of the central banks. These two banks
were built to finance expensive government military operations. Reserve
Bank of India (RBI) was built in 1935 under the provisions of Reserve
Bank of India Act, 1934. The RBI plays an important role in the
development strategy of the Government of India.

DEFINITION

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A central bank is a bank which constitutes the apex of the monetary and
banking structure of its country 1

FUNCTIONS OF CENTRAL BANKS

Functions of Central Banks depend of their specific countries. They

usually fall under three areas.

1. Central banks control and operate the money supply. They issue
currency and sets interest rate on loans and bonds. By working this
way they manage economic policy to lead the economy and achieve
economic goals like full employments.
2. Central Bank adjusts their banks through capital necessities. They
provide loans and services for their national banks and for their
government and administer foreign exchange reserves.
3. Central Banks acts as an emergency lender to troubled commercial
banks and other institutions and sometimes even their government.

1
Introductory Micro and Micro Economics , K.L.Verma , G.S.Mittal

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