Explain the function and responsibility of Central Banks in a country’s economy.

Explain the function and responsibility of Central Banks in a country’s economy.

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Expert Solution

Function and responsibility of Central Banks in a country’s economy:

1. The Central Bank of a nation is the primary note issuer of currency and helps drive the money supple in the economy.

2. It a banker to the government, finances the expenditures of Government enabling effective public expenditure.

3. Lender of the last resort, even the banks and financial institutions of an economy approach the Central Bank when they are in need of funds.

4. Maintains stable exchange rate, inflation rates by modifying its interest rates (monetary policy)

5. Creation and enabling expansion of financial institutions by extending branch banking to rural areas.

6. Credit control using quantitative and qualitative methods for facilitating healthy patterns of investment and production in an economy.

7. Solving the Balance of Payments problem by bringing about a balance between the imports and exports of a nation via foreign exchange management.

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