Answer to Question #308442 in Macroeconomics for VAISH

Question

1.   What are the functions of a central bank?

Answer 1

Functions of central bank

This is the most apex financial institution in a country. It has various functions in a country which include;

1.     Currency regulator: With relevant policies in place, it’s able to determine the cash available in the market. When it increases minimum reserve for banks, it enables it to mop- up cash available in the market, When it feels it’s in less, it decreases the minimum reserve for banks.

2.     Bank to the government: It where the government banks its funds and withdraws from it. It also advises the government on financial matters.

3.     Custodian of foreign currency: It’s where all foreign currencies are stored and regulated from in a country.

4.     Lender of last resort: It offers the last resort for banks in a country. It often happens where a commercial bank in a country is not able to meet its obligation and it’s going under.

5.     Controller of credit: the central bank control credit in the country as it’s the only institution bestowed with the sole mandate of printing currency.

6.     Protecting depositor’s interests: the central bank ensures that depositor’s funds in banks are well protected in a country. Every commercial bank in a country, it’s supposed to deposit minimum reserve with the central bank in its country. This act as security incase a bank goes into receivership.