Question

Explain the function of a Central Bank as a between Central Bank and Commercial Banks.
OR
Explain banker to the government function of Cental Bank.
OR
Explain ‘Government’s Bank’ function of central bank.

Answer 1

Central bank functions as a banker to the government—both central and state governments. It carries out all banking business of the government. Government keeps their cash balances in the current account with the central bank. Similarly, central bank accepts receipts and makes payment on behalf of the governments. Also, central bank carries out exchange, remittance and other banking operations on behalf of the government. Central bank gives loans and advances to governments for temporary periods, as and when necessary and it also manages the public debt of the country. Remember, the central government can borrow any amount of money from RBI by selling its rupees securities to the latter.