What is a central bank: A national bank that provides financial and banking services for its country’s government and commercial banking system, as well as implementing the government’s monetary policy and issuing currency.
Functions of Central Bank:
1. Work for the public welfare and economic development of a country. A central bank is governed by the government of a country.
2. Controls and regulates the entries banking system of a country.
3. Does not deal directly with the public. It issue guidelines to commercial banks for the economic development of the country.
4. Issues currency and control the supply of money in the Market.
5. Acts as a state-owned institution.
6. Act as a custodian of a foreign exchange of the country.
7. Act as a banker to the Government.
8. Controls credit creations in the economy thus act as a clearinghouse of other banks.
Commercial bank: This is a bank that offers services to the general public and to companies.
1. Operates for Profit Motive. The Majority of Stake is held by the government as well as the private sector.
2. Operates under the direct control and supervision of the central bank. In India, all the commercial banks work under the guidelines issued by RBI.
3. Deals directly with the Public. It serves the financial requirement of the public by providing short and medium terms loans and depositing and securing money that can be drawn on demand.
4. Does not Issue currency, but only adds to the approval of the central bank.
5. Acts as a state or privately owned institution.
6. Perform foreign exchange business only on the approval of the central bank.
7. Acts as agents of the central bank.
8. Acts as a clearinghouse only as an agent of the central bank.
The central bank is only one in a country and thereby unique in its ways of operations thereby been called the APEX Bank.