Question

q.) Discuss how the banks contributions towards the performance of these functions are measured, and show the extent of such contribution over the past 3-5 years

Below are the functions associated from the question

1. The regulation of the payment system

2. The stability of the financial system

3. The issue of notes and coins

4.   Banker to the commonwealth government

5. The implementation of monetary policy

Answer 1

1. The regulation of the payment system :

Payment system in an economy generally consists of a wide range of payment alternatives and commonly includes cheque payments at bank counter,  Real Time Gross Settlement (RTGS) system , National Electronic Fund Transfer (NEFT) system, IMPS, Unified Payments Interface (UPI), Credit cards and Debit cards and so on. The Central Bank of the country regulates all these payments along with other banks which work as execution partners. Without the contribution made by these banks, payment system cannot be regulated properly.  In the United States, funds transfers occur primarily through the Fedwire Funds Service, CHIPS, the National Settlement Service (NSS), cheque clearing, ACH and payment card networks. All these alternatives have their own particular mechanism of regulation and settlement which are ultimately monitored by Fed reserve.

2. The stability of the financial system :

The stability of the financial system is the primary responsibility of a central bank. The financial system plays an important  role in the economy. It enables the flow of funds between savers and borrowers, thus ensuring that financial resources are allocated efficiently towards promoting economic growth and development. The financial system and the banks in it play a crucial role in the economy by facilitating the flow of funds between savers and borrowers. Banks run the payment systems that enable local markets to operate and individuals and companies to travel to distant places and act there. Without a well-structured banking system, currency would not be able to circulate and it would also be harder to create markets for goods and services and for people and goods to circulate. Banks are thus the most essential as financial intermediaries.

3. The issue of notes and coins :

Responsibility of issue of notes and coins in an economy is generally performed by the central banks, its authorized agencies and in some cases also by government agencies. Commercial banks do not have any role in it.

4.   Banker to the commonwealth government :

A commonwealth refers to any group of people organized under a single government. A commonwealth thus means any government in which all people involved have a say. In USA, there is a commonwealth government. Banks as banker to the commonwealth government play significant roles in the following forms :

a. Act as financial intermediaries.

b. Facilitates payment system in the country.

c. Monetary policy and fiscal policy of commonwealth government are implemented through  these banks.