Page 46 - Office Practice and Accounting 10

According to Vera Smith:
"The primary definition of central bank is a banking system in which a single
bank has either complete control or a residuary monopoly of note issue."

According to Kent:
"A Central Bank is an institute charged with the responsibility of managing the
expansion and contraction of the volume of money in the interest of general
public welfare."

According to A.C.L. Day:
“A central bank is to help control and stabilize the monetary and banking
system.”

Functions of Central Bank
The functions of the central bank are as follows :

1. It acts as a note issuing agency :
Central bank enjoys the monopoly of bank note issue, i.e. no bank other than
central bank is authorized by law to issue currency. It has its issue departments
which issue notes and coins in economy. Coins are manufactured in the
government mint but they are put into circulation through the central bank.
The central bank is required by law to keep certain amount of gold and foreign
securities against the issue of notes. In some countries, the amount of gold
and foreign securities bears a fixed proportion of total notes issued. In Nepal,
under the Nepal Rastra Bank Act 2058 B.S., the sole right of issuing notes rests
on Nepal Rastra Bank but it should obtain the permission of the government.
Nepal Rastra Bank should maintain 50% security of gold, silver and coins and
50% security of foreign currency to issue the notes but it can be reduced to 25%
in special case.
2. It acts as the banker’s bank :
All the banks in the country are bound by law to keep a certain portion of
their total deposits as reserves with the central bank. These reserves help the
central bank to control the issue of credit by commercial banks. They in return,
depend upon the central bank for support at the time of emergency. Nepal
Rastra Bank serves as a guardian of banking system in Nepal. New banks and
financial institutions are established by the permission of Nepal Rastra Bank. It
is responsible for regulating, controlling and developing banking system in the

40 Office Practice and Accounting 10