question_answer

Explain the 'bank of issue' function of the central bank.

Or

Explain 'Government's Bank' function of central bank.

 

Answer:

Bank of issue function of central bank implies that the central bank of a country has the exclusive authority to issue the currency (notes + coins). The currency issued by the central bank is known as ?legal tender money? i.e. the value of such currency is backed by the central bank. However, the currency issued by the central bank is its monetary liability. In other words, the central bank is obliged to back the currency issued by it by assets such as gold coins and bullions, foreign exchange. In addition to issuing currency to the general public, the central bank also issues currency to the central government of the country. That is, the central government if required, can sell its securities to the central bank and in return gets the required cash currency.

Or

Central bank acts as a banker and financial advisor to the government. As a banker to the government, it performs the following functions.

(a) It manages the account of the government.

(b) It accepts receipts from the government and makes payment on behalf of it.

(c) It grants short-term loans and credit to the government.

(d) It performs the task of managing the public debt.

(e) The central bank advises the government on all the banking and financial related matters.