Role and Autonomy of Central Bank- All You Need to Know

Definition:

Central Bank is the Prime Apex bank which takes care of the entire financial institutions and banking system in a country.  Other than heading banking services, it monitors, regulates and guides the entire financial sector of the country.  It is responsible for issuing currency and implementing monetary policy in a country.

Roles:

Let us see the important functions carried out by a central bank:

  1. Currency issuing: Central bank takes care of the minting and distribution of currency. This involves huge cost and security measures.  Continue reading to know on the less costly mode of minting- i.e. digital currency.  Most countries are showing interest in digital currency apps like Ethereum code.  Central banks all over the world are taking up technological research on the feasibility of implementing digital currency.
  2. Government’s Banker: The central bank takes care of the payment of various expenses incurred by the government like infrastructure, health, welfare etc. It maintains the governments’ cash and offers them temporary loans too.
  3. Banker’s Banker: The central bank is the banker of all the commercial banks. It takes care of their reserve monies and supervises their proper functioning.
  4. The controller of credit and money supply: Through the monetary policy the central bank regulates interest rates prevailing in the country.
  5. Exchange control: Central bank ensures the stability of the home  So, there will not be much depreciation in value against foreign currencies.
  6. Lender of last resort: When commercial banks have exhausted all their funds, they come to the central bank for loans.
  7. Custodian of foreign exchange: Central bank acts as custodian of forex reserves of a country.
  8. Collection and publication of data: It collects and publishes useful financial data.

Autonomy of the central bank:

All over the world, the goals of governments is to pull the interest rates down to attract more investments in trade and industry.  But the central banks decide on the interest rates based on inflation level.  If there is no necessity to increase or decrease the rate, the bank will not.

This contradiction in goals had led to opinions gathering all over the world that autonomy should be removed from central banks.

The control of inflation and pumping of money into the economy are taken care of by financial experts of the central bank with reasons.  But they are criticized for sticking to their goals when the economy suffers from unemployment and poor growth.

Before removing the autonomy of central bank all the above points are to be considered clearly.