Bank of issuing notes Central Bank of country has the exclusive right (Monopoly right) of issuing notes. This is called currency of the function of the Central Bank actually still the beginning of 20 century the Central Bank was known as Bank of Issue. The notes issued by the central bank are an unlimited legal tender.
Banker to the Government : Central Bank is Banker, agent and financial advisor to the government. As a banker to the government, it is a manages accounts of the Government. As an agent to the government, it is buys and sells securities on behalf of the Government. As an advisor to the Government, it frames policies to regulate the money market. The Central Bank also offers loan to the government against the Government securities or treasury bills. In a situation when its revenue fall short of its expenditure (a association of Deficit government budget), the government often seeks loans from the central bank (RBI) this is a called, 'deficit financing for blowing from the RBI.
Banker's Bank and Supervisory Role : As a Banker's Bank, it has almost the same relation with other banks in the country as a commercial Bank has with its customers. It accepts deposits from the commercial banks and offers them loans.
Lender of the Last Resort : Commercial banks create liabilities (demand deposits) many times more than their cash reserves. This is possible only so long as people have confidence in the banking system of the country.
Custodian of Foreign Exchange : Central Bank is the custodian of nations foreign exchange reserves. It also exercises 'Managed Floating' to ensure stability of exchange rate in the international money market. Managed floating refers to the sale and purchase of foreign exchange with a view to achieving stability of exchange rate for the Domestic Currency.
Clearing House Function: Central bank perform the Function of a clearing house.
Control of Credit : The principal Function of the Central Bank is to control the supply of credit in the economy. It implies increase or decrease in the supply of money to cope with the situations of Inflation and Deflation.
