Central banks Essay Example | Topics and Well Written Essays - 1500 words

Central banks - Essay Example al bank delights in the monopoly of accumulating the financial base of a state and also it do prints the national currency which functions and acts as the state’s legal tender. This particular institution is considered to be independent from political intervention though restricted regulation by the executive and legislative bodies does exist. The central bank enjoys supervisory controls over other financial institutions. This helps in decreasing the risk that commercial banks and other financial institutions might indulge in fraudulent practices that may negatively affect a nation’s economy. A depository institution is a financial institution like commercial bank, savings bank and credit union that is lawfully permitted to receive deposits from its customers and provide them commercial credits. The federal depository institutions are controlled by the Federal Deposit Insurance Corporation in the United States. Depository institutions are also regulated by the central bank in a number of ways so as to manage the money supply in the economy. They are also obligated by the central bank to conserve the reserve prerequisite as specified. The central bank functions as a banker, agent and financial advisor to the government. As a banker to the government, it plays the same role as a commercial bank does to its customers. It keeps the accounts of both the central government and the state government. It accepts payments from the government and offers short term credits to the government. It accumulates cheques and drafts put in the government account. It conveys overseas exchange capitals to the government for paying back marginal arrears or in the procurement of foreign goods. As an agent to the government, it collects taxes and other payments on behalf of the government. It also raises loans from the public thus managing public liability. The central bank also represents the government in external financial institutions in conferences. It equally acts as a