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iv. To Create and Control of Credit
Capital is basic source for the business and industries. Central Bank avails capital in
terms of credit through the commercial and development banks. But when excess credit
facilities are granted, inflationary problems may arise. So, it again contracts credit by
instructing the banks to draw back the money from the organizations in time, limiting
credit grants and even taking actions against the banks not following the rules and
regulations strictly. Sometimes, it can also frame special acts for the creation and control
of credit.

v. Management of Foreign Currency
Central bank has the sole right to manage and exchange foreign currency. It
determines the value of national currency with that of the foreign currencies at the
instruction of the government. It is the custodian and manager of the country’s reserves
of the foreign currencies. Commercial banks exchange foreign currency on the permission
of Nepal Rastra Bank in Nepal.

vi. Developing Banking System
Central bank encourages the individuals and institutions for the establishment of
banking institutions. It keeps certain deposit as per the rules and instructs the bankers
to operate their activities for the upliftment of backwarded society so that, the national
economy can be strengthened by activating all the economic sectors. It also provides
financial and administrative help for their growth and development. For this, it suggests
the government to frame the liberal economic policy.
vii. Mobilization of Capital and Management of Public Debt
Central bank manages the public debt for different development and administrative
works. It collects such debt from general public and different organisations by issuing
treasury bills and development bonds. It helps to raise short term and long term capital
and mobilize in the development work.

viii. Makes Monetary Policies
Central bank makes monetary policy for the nation. It collects and analyses the
various kinds of monetary information and formulates monetary policies.

ix. Lender of Last Resort
Central bank is the apex body of financial institutions. If other banks and financial
institutions are in financial crisis, the central bank provides loan to them as lender of last
resort. It fulfils the financial demands of banks and financial institutions at the time of
emergency. Central bank grants loan to other banks and charges interest.
x. Other Functions
Besides the above functions, central bank acts as the custodian of the cash reserve of
other banks, provides loan to them against securities, purchases and sells of government
security, opening Letter of Credit (LC) on behalf of the government and other banks, dealing
with foreign banks, transferring money for other banks, standing as representative of the
country in the functions of International Monetary Fund (IMF), control and supervise

66 Aakar’s Office Practice and Accountancy - 10 Financial Institutions 67