Difference between a Central Bank and Commercial Bank

This article will help you to learn about the difference between a central bank and commercial bank.

Difference between a Central Bank and Commercial Bank

Difference # Central Bank:

1. Work for the public welfare and economic development of a country. A central bank is governed by the government of a country.

2. Controls and regulates the entries banking system of a country.

3. Does not deal directly with the public. It issue guidelines to commercial banks for the economical development of the country.

4. Issues currency and control the supply of money in the Market.

5. Acts as a state owned institution.

6. Act as a custodian of a foreign exchange of the country.

7. Act as a banker to the Government.

8. Controls credit creations in the economy, thus acts as a clearing house of other banks.

Difference # Commercial Bank:

1. Operates for Profit Motive. The Majority of Stake is held by the government as well as the private sector.

2. Operates under the direct control and supervision of the central bank. In India all the commercial banks works under the guidelines issued by RBI.

3. Deals directly with the Public. It serves the financial requirement of the public by providing short and medium terms loans and depositing and securing money that can be drawn on demand.

4. Does not Issue currency, but only adds to the approval of the central bank.

5. Acts as a state or private owned institution.

6. Perform foreign exchange business only on the approval of the central bank.

7. Acts as agents of the central bank.

8. Acts as a clearing house only as a agent of the central bank.