Central Bank is a financial institution which is responsible of changing the expansion and transaction of money in the large interest of nation. A central Bank performs many functions but some main functions are as under:
Issue the currency It has sole or near monopoly to issue the currency note. It follows any principal for doing this function. Bank of England issues the currency note under the principal of fixed fiduciary limit when State bank of Pakistan followed the proportional reserve system.
Adviser of the Government
Central Bank advises the government on all financial matter like inflation, deflation and devaluation and represents the government in all international monetary conference. It surreys the economy, collects the data and publish it before budget and preserves the foreign exchange reserve and fixes the rate of exchange and it buys and sells the foreign exchange. So it provides the locker serves for all. It collects the taxes which are applied by the government. It disburses the government expenditure. and advance short term loan to government and it keeps the government surplus deposits
It leads and guides the commercial bank. The banks are to obey all its order and direction. No banks can open, transfer and close any of its branches without its permission. Every bank has to furnish its assets and liabilities in the form of balance sheet regularly. Every hank has to open it account in the central bank with it times and demand liabilities (current & Fixed A/C). The bank has also to keep some cash against the deposit which is called liquidity deposit. The central bank provides the clearance house facility to the scheduled bank. It is also the last option for the banks which provide them loan by re-discounting their bill of exchange.
Custodian of the Money Market
Central Bank responsible to expand and contract the money supply and increases the rate of economic development with investment. It boosts up his growth of the economy. It tries to get the full employment level and also tries to keep the value of money stable. For that it adopts bank rate policy, open market operation. It changes the reserve ration for creating loan. It also applies the rushing of credit to control the money supply. Efforts are make to expand and contract the supply of money according to the needs of the economy.