5 Roles of the Central Bank

A central bank is an authority responsible for policies that affect a country’s supply of money and credit.

The central bank uses its tools of monetary policy to affect short term interest rates and the monetary base in order to achieve important monetary policy goals and objectives

Roles of the central bank include;

  1. Central banks have a role in encouraging liquidity, solvency and proper functioning of the financial system. central bank thus inspects commercial banks and other financial institutions and, in this way, becomes principal advisors on whether or not to issue or renew licenses of financial institutions. in addition, authorized dealers in the banking markets are usually supervised by the central bank

2. Central bank usually formulates and implements the country’s foreign exchange policy. in countries that have exchange control, the central bank may be responsible for enforcing such controls. a related aspect is the management of a country’s foreign exchange reserves which are usually conducted by the central banK

3 . Central banks generally formulate and implement monetary policy in a given country. this function is usually directed at achieving maintaining price stability. in this regard the central bank issues guidelines on interest rates and credit, therefore, play a vital role   in controlling the level of money supply in a given country

4. Central banks issue currency notes and coins in their respective countries. in this regard central has taken over from currency boards which originally had the function of issuing currencies

5. Central banks also usually act as bank advisers and fiscal agents of the government  as   Banker of the government  It makes and  receives payments on behalf of  the government

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