FUNCTIONS OF CENTRAL BANKS

What functions are more characteristically the central banking functions has been widely discussed question among economists. Hawtrey thinks that it should primarily be the “lender of last resort.” Vera Smith stresses the monopoly of note’ issue and Shaw egards control of credit as “the one true, but at the same time all sufficing, function of a central bank.” Kisch and Elkins? regard “the maintenance of the stability uf the monetary standard” as the essential function of central bank. It is, however, difficult to single out any particular function as characteristic of a central bank. Broadly put, a central bank acts in the following capacitiest–

(i) As the note-issuing agency:
(ii) as the banker to the State;
(iii) as the bankers’ bank;
(v) as the guardian of the money market, through control of credit:
(vi) as the lender of last resort;
(vii) it undertakes to maintain the external value of the dome uc currency:
(vii) it en ure the tability of the internal
value of the currency. i.e.. the price level:
(viii) it undertal e exchange control operations, &
(ix) it fights economic c. iscs and tluctuations and ensures economic stability of the country.

 Above arc given what are known as the traditional functions of a Central Bank. In the advanced countric of the West, it is these [unctions which their central banks have been performing. Largely these functions arc regulatory in nature. In the under-developed countries. however, whose main concern is to accelerate development of their economic potentialitie , the Central Banks have a special role to play, which is not merely regulatory to maintain stability. but developmental and promotional. This latter role is discussed at length in the last section of the present chapter. We shall now proceed to consider some of these functions in ‘some detail,