Answer in Detail Explain the Functions of the Central Bank Economics

It has its issue department which issues notes and coins to commercial banks. Coins are manufactured in the government mint but they are put into circulation through the central bank. Centralised reserves enable the central bank to provide financial accommodation to the commercial banks which are in temporary difficulties. In fact the central bank functions as the lender of the last resort on the basis of the centralised cash reserves. • Moral suasion implies persuasion, request, informal suggestion, advice and appeal by the central banks to commercial banks to cooperate with general monetary policy of the central bank.

It helps in pursuing a coordinated policy towards the balance of payments situations of the country. Central Government is also authorized to borrow money from the Central Bank. Whom government incurs a deficit in its budget, It borrows from Central Bank by selling its treasury bills. When Central Bank acquires these securities, it issues new currency.

The instrument and the pay-in-slip are detached from the counterfoil and the later is handed over to the customer duly stamped and signed. B) Returned instruments are sent to Principal Branch/Designated Branch along with IBDA within the fixed time frame for onward submission to Bangladesh Bank Return House. The instruments with schedule, Clearing House Book /Computer diskette are to be sent to the Clearing House for realization of proceeds. Our Introduction to Corporate Finance Coursegives you an overview of how capital markets work. is an online article publishing site that helps you to submit your knowledge so that it may be preserved for eternity.

In 2016 cleared contract volume totaled 4.17 billion making it the fifth highest annual total in OCC’s history. Under exchange control system, every citizen of India has to deposit with the Reserve Bank of India all foreign currency or exchange that he receives. And whatever foreign exchange he might need has to be secured from the Reserve Bank by making an application in the prescribed form. When the central government expenditure exceeds government revenue and the government is unable to reduce its expenditure, then it borrows from the RBI. This is done by selling security bills to RBI which creates new currency notes for the purpose. This is called monetisation of budget deficit or deficit financing.

All cheques, Payment Order, Demand Drafts and other credit instruments tendered for the credit of customer’s account are delivered by the depositors at the clearing and collection counter. Deposits received by post are to be sent over to the clearing and collection counter. Both Usance and Demand Bills are received at branches for collection or realization. It floats public loans and manages the public debts on behalf of the government. It keeps the banking accounts and balances of the government after making disbursements and remittances. As an adviser to the government it advises the government on all monetary and economic matters.

What are the functions of Central Bank?

• It refers to minimum percentage of net total demand and time liabilities, which commercial banks are required to maintain with themselves. Financial exchanges, such as commodities futures markets and stock exchanges, began to use clearing houses in the latter part of the 19th century. In 1874 the London Stock Exchange Clearing-House was established for the purpose of settling transactions in stock, the clearing being effected by balance sheets and tickets. The balance of stock to be received or delivered was shown on a balance sheet sent in by each member, and the items are then cancelled against one another and tickets issued for the balances outstanding. As late as 1899, the London Stock Exchange was still the only stock exchange in Europe using a clearing house. The Consolidated Stock Exchange of New York used clearing houses from its inception in 1885.

clearing house function of central bank

It has been mentioned above that a central bank is the custodian of foreign exchange reserves and nation’s gold. It keeps a close watch on external value of its currency and undertakes exchange management control. All the foreign currency received by the citizens has to be deposited with the central bank; and if citizens want to make payment in foreign currency, they have to apply to the central bank.

Clearing house function of the central bank leads to a good deal of economy in the use of cash and much of labour and inconvenience are avoided. By adopting such methods, the central bank tries to influence and control credit creation by commercial banks in order to stabilise economic activity in the country. In the first place, the centralisation of cash reserves in the central bank is a source of great strength to the banking system of a country.


Besides giving the explanation of Explain the function of central bank as clearing house? Has been provided alongside types of Explain the function of central bank as clearing house? Theory, EduRev gives you an ample number of questions to practice Explain the function of central bank as clearing house?

  • This encourages borrowing because it makes people get more credit against their securities.
  • It advances short-term loans to the government to tide over difficulties.
  • Although its specific activities will vary depending on the type of transaction involved, generally the clearing house’s main duty is to make sure the transaction runs according to plan.
  • 5.3 The Clearing House Book /Computer diskette is prepared in duplicate, and the total is balanced with that of the Clearing Register/Computer.

When central bank buys securities, it increases cash reserves of the banks and their ability to give credit. Central bank usually also have supervisory powers, intended to prevent bank runs and to reduce the risk that commercial banks and other financial institutions engage in reckless or fraudulent behavior. The central bank acts as a “clearinghouse” by providing free services to commercial banks in transferring and settling their mutual claims. Since the RBI holds reserves of commercial banks, it facilitates the clearing of cheques by transferring funds between banks. The principle of bookkeeping is followed in this procedure to make transfer entries into their accounts. There is a separate department operated by the central bank in big cities and trade centers to transfer and settle the claims of one bank on the other.

Top 9 Functions of Central Bank – Explained!

Central banks are in charge of ensuring the country’s Financial Stability and Economic sovereignty. The representatives of commercial banks meet daily at the clearinghouse to settle their claims. Central Bank is responsible as a result of the management of foreign exchange and monetary policy, maintenance of the external value of the home currency. 7.1 Drafts must be issued in chronological order free from alterations under the joint signatures of authorised officials. If there is no protector-graph machine or Check Writer Machine in the branch the words “Not over Tk…..” should be written in red ink. As the names of branches are not printed on Bank’s draft forms, particular care must be taken that all drafts, before they are issued, are branded with the Branch name seal just below the name of the Bank.

clearing house function of central bank

Thus, the central bank by acting as the lender of the last resort assumes the responsibility of meeting all reasonable demands for accommodation by commercial banks in times of difficulties and strains. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Explain the function of central bank as clearing house? Find important definitions, questions, meanings, examples, exercises and tests below for Explain the function of central bank as clearing house?. The central bank lends to such institutions in order to help them in times of stress so as to save the financial structure of the country from collapse.

The Reserve Bank has a separate “Issue Department”, which is entrusted with the job of issuing currency notes. • The central bank assists such banks through discounting of approved securities and bills of exchange. When looking at the clearing house definition, one of the primary areas where you’ll see clearing house function of central bank it applied is within the futures market. This is because trading futures contracts involves borrowing money with the intention of investing it later. Without a third-party intermediary like a clearing house to regulate these transactions, it would be easy for either party to back out of their bargain.

They can lend more money subsequently to the business community. Hence clearing house increases the credit facilities in the country. The clearing house provides safety in settlement of claims because there is no involvement of cash. A branch wise detail in triplicate in prepared So, for all cheques drawn on different branches of banks.

Banker to the Government

Attestation of the payee’s signature must be made under joint signatures of the officials who have signed the relative drafts. The drawee Branch will, however, pay the draft if the same is otherwise in order in all respects. Realised from purchasers at the prevailing rates of the Bank. Any change in the rates will be communicated to the branches by the Head Office through circulars from time to time. 2.1 The signing official must see that the particular of each Payment Order have been entered in Payment Orders Account Register No.

This role of the central bank is of a fiscal agent to the government where the RBI keeps the deposits of both central and state governments. It also makes payments on behalf of the government, along with buying and selling foreign currencies. The various functions of a reserve bank as an advisor is to tender useful suggestions to the government regarding monetary policies and other economic matters. All commercial banks in a country keep a part of their cash balances as deposits with the central bank, may be on account of convention or legal compulsion. They draw during busy seasons and pay back during slack seasons. Other member banks look to it for guidance, help and direction in time of need.

Deja una respuesta