Function of Central Bank

Central bank issues currency notes except one rupee note. It controls the volume of currency and credit circulating in the market. 

It is bankers of banks, state government and union Governments. It gives loans and advances to Governments. It accepts receipts and makes payments on behalf of the governments. It supervises the banks of country.

It controls credit and money supply in the market. Money supply is controlled through instruments of money policy, like Bank Rate, Repo Rate, Cash Reserve Ratio and Open Market control.

It maintains the external value of currency. It controls the exchange of foreign currency with internal currency.

When commercial banks have exhausted all resources to supplement their funds at times of liquidity crisis, they approach central bank as a last resort. As lender of last resort, central bank guarantees solvency and provides financial accommodation to commercial banks. It helps to maintain credit of the bank and prevents bankruptcy of the bank.

Central bank is the custodian of foreign exchange reserves and nation’s gold. It keeps a close watch on external value of its currency and undertakes exchange management control. 

It has also been entrusted with the task of collection and compilation of statistical information relating to banking and other financial sectors of the economy.