Activities of Central Bank

What is central bank? Mention the activities/function of Central Bank Or,
Write in detail the steps taken by the central bank.

Central Bank is known as the financial institution of a country. The central bank influences the overall economy of the country by managing and controlling all the banks and financial markets of the country. A central bank is a financial institution that regulates all activities of the overall financial institutions of any country and formulates laws for the financial and economic development of the country. Earning profit is not the main objective of the central bank, but to keep commodity prices stable by controlling the money and credit market, the economic and social development of the country is the main objective of the central bank.

Definition of Central Bank

Different economists have given different definitions about central bank. Below are some of their definitions:

Modern economists of the University of London R. S. Sayers said, “The central bank is a government institution that performs most of the government's functions and while performing the said functions he is in various ways in the country It implements the government's monetary policy by influencing the operations of financial institutions.”

According to de Kock, "The central bank's principle is the overall economic welfare of the country, not profit making."
Professor Kisch and Elkin in their book 'Central Banking' mention, “A central bank is a bank whose essential duty is to preserve the value of currency. ” 99
According to Professor Stephenson, "The central bank is a banking institution that is under the control of the state for the overall welfare of the country, maintaining economic equality and price level. Engaged in stabilizing.”
Renowned writer and banker Dr. S. N. According to Sen, "The central bank is the leader of the banking society, the states and the sun rule the banking kingdom like the leaders, and like the sun gives light and energy to the world."
Economist Professor R. P. According to Kent, “A central bank is an institution entrusted with the management of the increase and decrease of the quantity of money for the welfare of the people.”

In view of the above definitions, we can say that the central bank is the highest empowered financial institution of the country established under the control of the government in full government or public and private joint ownership, whose main responsibility is to manage, monitor and control its activities as the guardian of the currency and capital market of the country and in the national economic interest. Ensuring formulation and implementation of monetary policy of the country. Currently, every country in the world has a central bank. Central banks of different countries are known by different names. For example, the central bank of England is known as 'Bank of England', the central bank of the United States is known as 'Federal Reserve System' and the central bank of Bangladesh is known as 'Bangladesh Bank'.

Circulation of notes

The central bank enjoys the exclusive right to issue notes in the entire banking system. Earlier commercial banks could issue notes and the government itself issued notes. But at present the central bank has to shoulder the responsibility of circulation of notes. In this case, although the government is responsible for the circulation of retail currency, the central bank also circulates retail currency many times. While issuing the notes, the central bank reserves gold, silver and foreign currency as required by law against the notes. Notes are generally issued based on the economic needs of the country. Bangladesh maintains foreign exchange reserves as security against bank notes. Following are the reasons behind giving the central bank monopoly over note circulation:

• A stable domestic and foreign exchange rate of currency is a prerequisite for the economic development of the country.
• Equality in size, type and value of conventional notes or coins keep
• People have faith in central bank notes and this faith remains almost intact even during economic crisis.
• A single benefit of currency market regulation.

Government Bank

One of the most important functions of the central bank is to act as the government's bank. Central and provincial governments deposit all revenues in the central bank. The government spends money on various activities through the central bank for the deposited money. Keeping the government's income and expenditure accounts is also the job of the central bank. From the above discussion, it can be seen that the central bank as the bank of the government performs the following functions:

• The central bank oversees the government's accounts, Stores government funds interest-free and at the behest of the government That money is spent for various purposes.
• The central bank provides loans to the government in times of urgent financial crisis of the country. Generally loans are given to the government against various collaterals. This loan is short term. By issuing loans, the central bank can temporarily meet the financial needs of the government.
• It works in coordination with the government's fiscal policy to curb inflation and deflation.
• The central bank issues bonds on behalf of the government.
• Acts as advisor and representative of the government in financial matters.

Conservation of currency value

International currency value Also, the central bank plays an effective role in ensuring that there is no imbalance in the domestic currency. The central bank controls the value of the currency in order to increase the value of the country's currency. Therefore, the central bank takes effective measures to facilitate balance of payments and increase foreign exchange savings.

Banks of other banks

The banks which are members of the central bank are required to deposit a certain part of their total deposits with the central bank. For example, scheduled banks in Bangladesh are legally required to deposit five percent of their deposits with the central bank. Commercial banks can borrow from the central bank in return for depositing a certain portion of their deposits with the central bank. Moreover, the banks have to do their daily work The central bank gives necessary advice and suggestions for conducting the operations. In this way, the central bank of other banks Works as a bank.

Lenders of Last Resort

The central bank acts as a lender of last resort for the proper functioning of other banks. When commercial banks face financial crisis and cannot raise loans from other sources Then they approached the central bank.

In this case, the central bank provides loans to the commercial banks by refinancing various bonds against certain collateral. Even the central bank can grant loans to commercial banks by buying and selling first class shares, securities, treasury bills, financing bills, term hundis etc. in the open market. This is the end of the loans of the scheduled banks Acts as shelter.

Clearing House

The central bank acts as a clearing house for all other banks in the country. One bank becomes a debtor or creditor to another bank by breaking cheque, bank draft, hundi etc. In this case, the central bank helps one bank to pay the debts of another bank. These activities of the central bank are called clearing houses. It is also sometimes called Nikashgarh. Commercial banks do not have to deal with large amounts of cash at branch level and head office level due to the facility of clearing house. In this system, different banks can settle the difference of each other's debts only by debit-credit as their own kept in Bangladesh Bank. In areas where there is usually no regional office of the central bank, another major commercial bank acts as a clearing house on behalf of the central bank.

Credit Control by central bank

The credit supply of a country depends on the lending policies of commercial banks. The central bank can directly and indirectly control the lending policies of commercial banks. If the lending is high or low, the central bank works to keep the loan amount at the desired level for the overall financial welfare of the country. Moreover, the central bank tries to keep commodity prices stable by adjusting the supply of money with the demand for money. That is why the central bank controls the lending system of commercial banks. The central bank regulates the lending system of commercial banks by adopting methods such as changes in bank rates, open market policy, change in cash deposit ratio, loan rationing, campaigns etc.

Development Functions of central bank

The central bank helps the government in formulating and implementing development plans. The central bank provides information for development projects, expresses views on the feasibility of projects, formulates policies for project implementation. In this case, the central bank performs developmental activities in various sectors of the economy including agriculture, industry and trade.

Other Functions of central bank

In addition to the above various functions, the Central Bank carries out the following functions:

• Helps to prevent unemployment and increase employment in the economy.
• The central bank works as a research institute to solve economic problems in different countries.
• The central bank maintains the internal value of the currency by controlling the country's debt structure.
• Increases trade and alleviates crisis in the country's internal business.
• Maintains linkages with foreign central banks etc.

In view of the above discussion, it can be said that The central bank plays an important role in the economic development of a country by performing these tasks.