Which of the following is a function of Central Bank ?
All of the above
All three are functions of a central bank — option 4.
| Option | Which classical function it names |
|---|---|
| Manage the repo rate | Controller of credit — the repo rate is the principal instrument of monetary policy, set by the Monetary Policy Committee |
| Lending to commercial banks | Lender of last resort — the RBI lends to banks short of liquidity, through the repo window and the marginal standing facility |
| Bank facilities to the government | Banker to the government — it keeps the accounts of the Union and the states, receives and pays on their behalf, and manages their borrowing |
The full list of central-bank functions, of which these are three :
| Function | What it means |
|---|---|
| Bank of issue | Sole right to issue currency notes — in India all denominations except the one-rupee note, which the Ministry of Finance issues |
| Banker to the government | Accounts, payments, and management of public debt |
| Bankers’ bank | Holds the CRR of every scheduled bank and settles between them |
| Lender of last resort | Supplies liquidity to a solvent bank in difficulty, and so prevents a run from spreading |
| Controller of credit | Repo and reverse repo rates, CRR, SLR, open market operations, and selective controls |
| Custodian of foreign exchange | Holds the reserves and manages the exchange rate under FEMA |
| Regulator and supervisor | Licenses banks and inspects them under the Banking Regulation Act, 1949 |
| Developmental and promotional | Financial inclusion, priority-sector lending norms, payment systems |
About the Reserve Bank. It was established on 1 April 1935 on the recommendation of the Hilton Young Commission, was nationalised in 1949, and has its headquarters at Mumbai. Sir Osborne Smith was its first Governor and C. D. Deshmukh the first Indian Governor.
How to answer such a question : when three options each name a genuine and distinct function of the same body, the fourth is almost always the answer.
Hence, the answer is All of the above.
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