Central bank is the bank which provides assistance to all other commercial banks of the country and that is why it is called the lender of last resort implying that in case of any difficulty faced by the commercial banks of the country, the central bank will come to their rescue. Given below are the main functions of the central bank of a country –
1. Central bank implements the monetary policy of the government through which it tries to maintain a balance between inflation and growth of the economy of the country.
2. It sets down the broad boundaries within which the commercial bank and financial institutions operates. In other words it supervises the whole banking system of a country.
3. It acts as a banker to the government of the country, which implies that it performs merchant banking function for the central and the state governments, also it raises the money for the government by selling government Treasury bill bonds in the money market.
4. It is only central bank which can issue the new currency and coins and also it performs the function of destroying the currency and coins which are not fit for circulation.
5. It also helps in keeping the currency movements by entering and exiting whenever there are large fluctuations in foreign exchange market, by dealing in foreign exchange markets.