Top 10 Functions of Central Bank according to De Kock

The following points highlight the top ten functions of central bank according to De Kock.

Some of the functions are: 1. Monopoly of Note Issue 2. Banker and Adviser to the Government 3. It Acts as the Custodian of Cash Reserves of Commercial Banks 4. It Acts as Lender of the Last Resort 5. It Controls the Credit of the Country and Others.

Function of Central Bank # 1. Monopoly of Note Issue:

Central Bank has the monopoly of Note-issue. Notes issued by it circulate as legal tender money.

It has its issue department which issue notes and coins to Commercial Banks. Coins are made or manufactured in Government mint but they are put into circulation through the Central Bank.

The monopoly of note issue ensures uniformity in the notes issued which helps in facilitating exchange and trade within the country. It brings stability in the monetary system and creates confidence among the public.

Function of Central Bank # 2. Banker and Adviser to the Government:

The Central Bank everywhere acts as bankers and advisers to their respective governments. As banker to the government the Central Bank keeps deposits of the Central and State Governments and makes payments on behalf of the Government. But it does not pay interest on Government deposits.

In times of need Government borrows temporarily from the Central Bank. Further, it remits government funds, purchases foreign currencies as well as manages the public debt. It also acts as the financial adviser of the Government.

Function of Central Bank # 3. It Acts as the Custodian of Cash Reserves of Commercial Banks:

Under Law every Commercial Bank has to deposit certain percentage (as fixed) of both time and demand deposits with the Central Banks. Here the Central Bank acts as the custodian of the cash reserves of Commercial Banks and helps in facilitating their transactions.

This type of deposits enables the Central Bank to provide additional funds on a temporary and short-term basis to Commercial Banks to overcome their financial difficulties in emergency.

Function of Central Bank # 4. It Acts as Lender of the Last Resort:

The other banks in the country depend very much on the Central Bank for support and help in times of emergency. This help may be in the form of a loan on the security. Bank prefers approved securities on through a rediscount of bills of exchange.

The Central Banks is thus the “Lender of the last resort” for other banks in difficult times, because on such occasions, there is no hope of getting help from any competing institution.

Function of Central Bank # 5. It Controls the Credit of the Country:

The control of credit is the most important function performed by the Central Bank. According to De Kock—”It is the function which embraces the most important question of the Central Banking Policy, and the one through which practically all the other functions are united and made to serve a common purpose.”

The credit money policy produces a deep impact on the economy. For this purpose the Central Bank adopts quantitative and qualitative methods. Quantitative methods aim at controlling the cost quantity of credit by adopting bank rate policy, open market operations and by variation in reserve ratio of Commercial Banks.

While in qualitative methods control the use and direction of credit. All these things are done by Central Bank in order to stabilise economic activity in the country.

Function of Central Bank # 6. Maintenance and Management of Foreign Exchange Rate:

Another most important function of a Central Bank is to keep stable the external value of the home currency. A stable exchange rate is necessary to maintain and promote a country’s foreign trade and to encourage the inflow of foreign investments which is necessary and essential for accelerating the pace of economic growth, particularly in the under-developed countries.

To maintain the rate of exchange stable, a Central Bank should always be prepared to buy and sell foreign currencies at the rates fixed by it.

Function of Central Bank # 7. It should make Necessary Provisions of Clearing House Facilities:

The Central Bank acts as the clearing house for the Commercial Banks. Since it keeps the cash reserves of the Commercial Banks, it becomes easier and more convenient for it to act as the clearing house of the country. All the Commercial Banks have their accounts with the Central Bank.

Consequently the Central Bank can settle the claims and counter claims of the Commercial Banks with the minimum use of cash. Only the transfer entries are made on the principle of book-keeping. The system of clearing house is time saving and convenient for the Commercial Banks to settle their claims at one place.

Function of Central Bank # 8. It helps in the Publication of Statistical Data and Other Useful Information:

The Central Bank collects and publishes useful statistical data about the various aspects of the functioning of the national economy. This provides valuable information and on the basis of which the Government can formulate and implement its economic policies.

Function of Central Bank # 9. It Keeps and Manages the Foreign Exchange Reserves of the Country:

It is called an official reservoir of gold and foreign currencies. It buys and sells foreign currencies at international prices. It fixes the exchange rates of the domestic currency in terms of foreign currencies. Further, it manages exchange control operations by supplying foreign currencies to importers and persons visiting foreign countries etc. in keeping with the rules laid down by the Government.

Function of Central Bank # 10. It Controls Fluctuations in Order to Curb Inflation:

The Central Bank will adopt necessary steps to control fluctuations and to curb inflation. Thus, the Central Bank through the monetary policies followed by it try to control the economic fluctuations.