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As banker to thegovt. the central Bank makes and receives payments on behalf of thegovt. It helps the
govt. With short-term loans and advances in times of difficulties.As govt. agent, the Central Bank also
acts as advisor to the govt. speciallyon monetary, banking and financial matters.
3.
Banker to the Banks:
The Central Bank bears the same relationship tothe commercial banks as the commercial
banks maintain with the generalpublic. The central banks acts as the bankers bank. The
commercialbanks deposit their surplus cash reserves with the Central Bank andsimilarly borrow
from the central bank when the need arises. In theearlier times smaller commercial banks used to look
upon their bigbrothers for this type of services.Gradually, as the relatively big banks began to
act as banks of issue andgovts bankers, the commercial banks began to look upon the as their
bankers. The cash reserves of the commercial banks came to becentralized with the central
bank.
4.
Custodian of Foreign Exchange Balances of the country :
Thecentral Bank performs two major functions in the field of foreignexchange:
(a)
It has become the custodian of the countrys reserves of international currencies, and
(b)
The maintains stability of the exchange rate of the currency.All the foreign exchange transactions of a
country are routedthrough the central bank of the country. All the expenses in foreigncurrency
whenever required are incurred though the agency of thisbank. Similarly, all foreign exchange
earnings have to be depositedwith the central bank.
5.
Lender of the Last Resort :
As commercial banks lend to theindividuals, the central bank lends to the commercial banks in times
of emergencies. Thus the central bank assumes the responsibility of meeting directly or indirectly all
reasonable demands for funds bycommercial banks in times of difficulties and crisis. A commercial
bankcan borrow from the central bank against eligible securities.
6.
Bank of central Clearance:
Economists lie shaw, willis and Jaunceyconsider the function of a clearing house as the most important
functionof the central bank. Because Central bank keeps the cash balance of allcommercial
banks, it is easier for member banks to adjust their claimsagainst each other in the books of the
central bank. This system of clearing agreements facilitates transfer of funds quickly safely
and at low cost