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Central bank is the supreme monetary institution, which is remained at the apex body of the
monetary and banking structure of a country. It is the leader of money market and it controls,
regulates and supervises the activities of the banks and financial institutions. A central bank
performs many important and essential functions which are explained as follows:
1.
2.
3.
Bankers Bank:
The central bank works as the banker of the other banks. Central bank holds the right of
supervision, control on other banks. Acting as the custodian of the cash reserve of
commercial banks, the central bank maintains the cash reserve of the commercial banks.
Every commercial bank of the country has to keep a certain percentage of the cash balance
as deposits with the central bank. Such reserve can be used by commercial banks to meet
the emergencies.
4.
5.
6.
Control of credit:
The credit should be controlled to maintain the price stability. In order to control the credit,
the central bank may use various tools such as bank rate policy, open market operation,
change in reserve ratio and selective methods, etc.
7.
8.
Development function:
There are various development functions of central bank, which are as follows:
o
Development of banks: The NBR helps in the development of banks and nonbanking financial institutions. It encourages banks to open branches in remote areas by
providing compensation and interest free loan.
Special program: The programs like priority sector credit program, cottage and
small industries projects, micro-credit for women have been launched with the initiative
of NRB.
Publicity: Central bank/NRB has been regularly publishing reports, journals and
bulletins related to the economic activities.
Economic study and research: Central bank conducts several research works and
economic survey in specific economic issues. It also provides necessary information for
plan formulation.