MONEY
In the ancient times, population was limited. So wants of people were limited and uncomplicated. So they were satisfied their wants very easily. They were used barter system in place of money as a means of transactions. They were exchanged goods against goods to satisfy their wants. Later, population expands and barter system become critical. People choose various business fields, as a result, division of labour and medium of exchange become unavoidable. The wants of people become unlimited and money come into existence as means of exchange or trade.
Now, in every country, whether it is developed or not, money plays very important role in economy. All the economic activities like production, marketing and communication are currently running smoothly with help of money. Almost all things in economics are put in form of money.
DEFINITION OF MONEY
1] Prof Robertson: “Money is anything which is widely accepted in payment for goods or in discharge of other kinds of business obligation.”
2] Raymond P. Kent: “money is anything which is commonly used and generally accepted as a medium of exchange or as a standard of value.”
3] Crowther: “Anything that is generally accepted as a means of exchange and that at the same time acts a measure and as a store of value.”
CHARACTERISTICS OF MONEY
1] An entity which is used as money must be transferable. Otherwise it will be used as consumable commodity and holder of it keep for himself only. Money must be exchanged against goods and services.
2] Acceptance of money must be remained constant. Money once accepted, should be given to other person.
3] Acceptance of money must be tangible. Money should be transferred easily with general conformity. If money is accepted after verifying its weight, colour, etc, is not considered as genuine money.
4] It is minor, who gives money. Goodwill of giver is not important.
NATURE OF MONEY:
1] Means of activity (function): Money is not useful to man directly. But money is used as means of exchange for goods and services. It is only an object of exchange.
2] It is means of exchange within the specific limits of country by general agreement of people.
3] Money does not produce anything itself. It is only helping factor in production in form of capital.
Types of Money:
1] Money is available in different forms. Money is broadly divided into two types in today’s economy i.e. 1) State Money and 2) Bank Money.
Types of Money
State Money Bank Money
Metallic Money Paper Money Cheques Drafts Bills of exchange
Full-Bodied Token
Money Money
Convertible Paper Money Fiat Money
1] State Money: Money which has the legal sanction in the discharge of debts is called state money or money proper or legal tender money. Legal tender money is that money which is officially designated by the government as an adequate instrument for the discharge of obligations stated to be payable in domestic money. Such type of money is backed by law and refusal to accept it, as a medium of exchange will be punishable by the state.
2] Metallic Money: It is of two types:
a) Full-bodied Money or Standard Coins: A coin whose face value is equal to its intrinsic (natural) value is called full-bodied money. For example the old-Victorian rupee. Its face value i.e. is the value defined by the government was one rupee and it contained silver worth rupee one. Its intrinsic value (silver content) was exactly equal to its face value (value defined by the government)
b) Token Money or Token coins: A token money or taken coin is one whose face value is much greater than its intrinsic value i.e. value of its component material. E.g. Indian one rupee coin. It contains metal worth hardly twelve paise.
3] Paper Money: It is of two types:
1) Convertible Paper money: The paper money which is convertible either into gold or silver or into metallic coins is called convertible paper money. E.g. Gold Certificate of USA.
2) Fiat Money: When the paper money circulates because of the fiat or authority of the state, it is called fiat money. It is not convertible.
4] Bank Money or Credit Money: Bank money consists of all credit instruments such as cheques, drafts and bills of exchange
FUNCTIONS OF MONEY
A] PRIMARY FUNCTIONS: It is basic functions in which money performs its economic system, under all circumstances.
1] Medium of Exchange: Money performs the basic functions. It is used for the exchange of goods and services. The value of goods and services are expressed in the form of money. Under the barter system, exchange of goods and services was very complicated. But in modern world, government is able to facilitate the people by collecting taxes in the forms of money in place of goods and services. Money offered the support of market and economy. Payments of all transactions can be made easily and conveniently with the help of money. By using money people can get any commodity in the market. Every commodity and service is bought and sold for money in the market. Money acts as a common medium for all exchanges. It is useful for conducting all trade and commercial transactions smoothly.
2] Standard of Value or Measure of Value: Money serves as the standard of value. It is used as a common measure of value. Money serves as the unit in terms of which the value of all goods and services is measured and expressed. Since every commodity is exchanged against money, the value of all goods and services are expressed in terms of money only. In India, the rupee is the standard of money and unit of account. The prices of all commodities are expressed in terms of money.
SECONDARY FUNCTION
1] Transfer of Value: Money helps in the transfer of value from one person to another and from one place to another. It serves both for time transfer and place-transfer of purchasing power. It does not involve any difficulty to transfer the value of different assets and properties from one place to another within the country or between two countries.
2] Store of Value: Money has ‘general purchasing power’. It is accepted at any time for goods or services and its value to a great extent remains constant. People can save and store purchasing power for future use out of their income. Many goods are perishable and can’t be stored for a long period. However, they can be marketed and can be converted into money, which can be permanently stored. In modern type of economy, many is stored in the form of currency notes and bank deposits. Money is the most liquid form of all assets.
3] Standard of deferred (delayed or postponed) payments: Moneys acts as a unit in terms of which deferred payments are stated. Money has made possible all present as well as future transactions. It provides as link between the present and future transactions. It makes borrowing and lending less risky.
CONTINGENT FUNCTIONS:
1] It improves productivity of capital: Money has liquid nature so liquidity nature of money helps in the mobility of capital and increase its productivity.
2. Basis of credit: Credit system is the backbone of modern economy. In this system money plays very vital role. Credit instruments are used in modern economy on large scale. Without money, credit instruments cannot circulate. A person can issue cheques only on the basis of credit.
3. Distribution of Social Income: After invention of money, it is now become possible to determine the share of every factor in production in terms of money.
4] Equalization of Marginal Utility: To get the maximum satisfaction, consumer earns the expenditure in such a way as to equalize these marginal utilities of expenditure in each use.
OTHER FUNCTIONS / ADDITIONAL FUNCTIONS:
1] Repayment Capacity: Money is accepted on general assumption so every firm keeps some amount of liquid money to sage guard its repayment capacity.
2] General Purchasing Power: Object of money to keep changing. It jumps on from one shoulder to another every time. So money is not used for one specific purpose only.
3] Motives: Money can be kept for day-to-day transaction purpose, emergency purpose like accident or sickness and businessman keep capital in liquid form to carry on speculative activities.
COMMERCIAL BANKING
MEANING: Commercial bank is a financial institution that operates for profit. It accepts deposits from the general public and extends loans to the households, the firms, and the government. In the modern age, bank plays very important role in production, trade and capital collection. Main functions of money are to collect the money as savings or deposits and lend them to others who can use them productively.
Definitions of Bank:
1] Dr. H.L. HART: A banker is one who, in the ordinary course of this business, honours cheques drawn upon him by persons from and for whom he receives money on current account”.
2] Prof. Kinley: “A bank is an establishment which makes to individuals such advances of money as may be required and safely made, and to which individuals entrust money when not required by them for use.
IT MEANS:
Banks accepts the deposits from general public.
Banks gives advances and loans to the needy people.
Classification of Banks:
1] Central Bank and 2] Other Banks.
In India, Reserve Bank of India is the central bank of India. It controls over all the banks in the country
Under the heading of other banks; banks can be classified as per their field like Agricultural Banks, Industrial Banks, Exchange Banks, and Commercial Banks. Agricultural banks works in agriculture field e.g. to provide loans to farmers in low interest rate. Industrial banks acts in industrial sector. It helps entrepreneurs or businessmen to improve their business. Exchange Banks offers services like to exchange foreign currencies. Commercial Banks provide loan to the traders.
FUNCTIONS OF THE COMMERCIAL BANKS
PRIMARY FUNCTIONS / BANKING FUNCTIONS:
1] ACCEPTING DEPOSITS: It is most important functions of commercial banks. By offering various deposit schemes, banks collect deposits from the people.
a) Fixed Deposit: In such account money is kept for fixed period, like one, two or three years. Deposited money cannot be withdrawn before the certain period. As compared with the other accounts rate of interest for such deposit is higher. Longer the period, higher the rate of interest.
b) Current Account: Actually such type of accounts are maintained or opened by businessman. Account holder can withdraw or deposit amount when he requires. No interest is allowed by on this account. A businessman can withdraw money several times in a day.
c) Savings Bank Account: It is a deposit account, which is operated by individuals for the purpose of savings a part of their income. Main object of such account to promote the habit of savings in general people. There are no restrictions on number and amount of deposits but withdrawals are restricted. The money can be withdrawn from this account either by cheque or by withdraw slip. Banks pay certain percentage of interest on the balance on savings account.
d) Recurring Deposit Accounts: Under this account, regular income earners deposits a certain amount of money at regular intervals for a certain period of time. An individual can deposits certain amount on his account for example Rs. 500 per month for continues 5 years. The period of this account is minimum 6 months and maximum 10 years. Bank offers attractive interest on such accounts.
2] GRANTING ADVANCES/LOANS:
Bank does not kept deposits only idle cash balances but after keeping certain cash as reserves; bank lend remaining cash to the people as loans or advances.
a) Overdraft: An overdraft facility is granted by the bank only those persons who have their current accounts in the bank. To meet the temporary needs of the customer, the bank mey permit the customer to overdraw the amount from the bank in excess of his balance is called overdraft. The interest is charged by the bank on actually amount is used by the customer. The overdraft is granted only for occasionally and for short period.
b) Loans: When a banker makes a lump-sum advance to the customers, it is called ‘loan. Interest is charged on the entire amount sanctioned. Bank does not consider whether the whole sanctioned amount is utilized or not. Loans are various types e.g. Term Loans, Personal Loans, Collateral Loans.
c) Cash Credit: It is short term credit given by the bank to any businessman to meet regular working capital needs. The bank opens a separate account in respect of cash credit. The borrower is allowed to withdraw / utilize from their account upto certain ‘limit’ against a bond signed by securities or any other eligible securities. Interest is charged only on the actual amount withdrawn by the customer.
d) Bills Of Exchange: It is type of discounting bill with the bank. If the holder of an exchange bill needs money immediately he can get it discounted by the bank. The bank deducts commission for itself and pays the present price of the bill to the holder. Bank retained the bill of exchange with itself till its maturity as a security.
SECONDARY FUNCTIONS / AGENCY FUNCTIONS:
1] Investment of funds functions: Commercial banks invest a part its surplus funds in government securities and earns for itself interest on such investments. From these investments bank does not earns more interest but such investments are for securities.
2] Transfer of Funds: Banks arrange transfer of funds cheaply and safely from one place to another place. Under this heading, bank transfers cheques means demand drafts drawn by one branch of bank to another branch of it.
3] The bank pays premiums of insurance policies on our demand through cheques.
4] The bank collects dividends or interests on deposits of their customers.
OTHER FUNCTIONS:
1] Credit or Debit Card Facility: Many banks offer debit or credit cards to their account holders to ease them to deposit or to withdraw money from the bank.
2] ATM: Bank also provides the facility of ‘all time money’ to their customers to get money different places and o different time.
3] Safe Deposit Vaults (Lockers): Bank provides facility of lockers or safe deposit vaults to their customers on minimum rent. So that, customer can set their valuable ornaments, important documents in the locker.
4] Foreign Exchange: Bank also facilitates their customer to transfer money from in country account to foreign country account. Bank also provides exchange of foreign currency.
5] Travellers Cheques: Bank offers to their customers’ ‘travelers cheque’ facility also. Except carrying so much money with them, customer may carry a cheque and can in cash in foreign country.
4] Transfer of Money: Bank can transfer money from one place to another place or from one account to another person’s account through cheques, drafts and mail transfer.
5] Standing Instructions: An account holder can give standing instruction to act on his behalf. E.g. bank can directly paid insurance premium, electricity bill, mobile bill, telephone bill, installment of loan or taxes on behalf of account holder after receiving standing instruction.
6] Bank can also collect dividend, interests, salaries, provident Fund or pension directly.
7] To act as a trustee: Bank acts as a trustee of individual, social institutions or charitable trust. To sustain, to protect the properties and to utilize funds in proper way are the acts of banks as trustee. If an individual confers responsibility to distribute the properties, as per will, bank is held responsible to act as per the will of deceased account holder.
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Now, in every country, whether it is developed or not, money plays very important role in economy. All the economic activities like production, marketing and communication are currently running smoothly with help of money. Almost all things in economics are put in form of money.
DEFINITION OF MONEY
1] Prof Robertson: “Money is anything which is widely accepted in payment for goods or in discharge of other kinds of business obligation.”
2] Raymond P. Kent: “money is anything which is commonly used and generally accepted as a medium of exchange or as a standard of value.”
3] Crowther: “Anything that is generally accepted as a means of exchange and that at the same time acts a measure and as a store of value.”
CHARACTERISTICS OF MONEY
1] An entity which is used as money must be transferable. Otherwise it will be used as consumable commodity and holder of it keep for himself only. Money must be exchanged against goods and services.
2] Acceptance of money must be remained constant. Money once accepted, should be given to other person.
3] Acceptance of money must be tangible. Money should be transferred easily with general conformity. If money is accepted after verifying its weight, colour, etc, is not considered as genuine money.
4] It is minor, who gives money. Goodwill of giver is not important.
NATURE OF MONEY:
1] Means of activity (function): Money is not useful to man directly. But money is used as means of exchange for goods and services. It is only an object of exchange.
2] It is means of exchange within the specific limits of country by general agreement of people.
3] Money does not produce anything itself. It is only helping factor in production in form of capital.
Types of Money:
1] Money is available in different forms. Money is broadly divided into two types in today’s economy i.e. 1) State Money and 2) Bank Money.
Types of Money
State Money Bank Money
Metallic Money Paper Money Cheques Drafts Bills of exchange
Full-Bodied Token
Money Money
Convertible Paper Money Fiat Money
1] State Money: Money which has the legal sanction in the discharge of debts is called state money or money proper or legal tender money. Legal tender money is that money which is officially designated by the government as an adequate instrument for the discharge of obligations stated to be payable in domestic money. Such type of money is backed by law and refusal to accept it, as a medium of exchange will be punishable by the state.
2] Metallic Money: It is of two types:
a) Full-bodied Money or Standard Coins: A coin whose face value is equal to its intrinsic (natural) value is called full-bodied money. For example the old-Victorian rupee. Its face value i.e. is the value defined by the government was one rupee and it contained silver worth rupee one. Its intrinsic value (silver content) was exactly equal to its face value (value defined by the government)
b) Token Money or Token coins: A token money or taken coin is one whose face value is much greater than its intrinsic value i.e. value of its component material. E.g. Indian one rupee coin. It contains metal worth hardly twelve paise.
3] Paper Money: It is of two types:
1) Convertible Paper money: The paper money which is convertible either into gold or silver or into metallic coins is called convertible paper money. E.g. Gold Certificate of USA.
2) Fiat Money: When the paper money circulates because of the fiat or authority of the state, it is called fiat money. It is not convertible.
4] Bank Money or Credit Money: Bank money consists of all credit instruments such as cheques, drafts and bills of exchange
FUNCTIONS OF MONEY
A] PRIMARY FUNCTIONS: It is basic functions in which money performs its economic system, under all circumstances.
1] Medium of Exchange: Money performs the basic functions. It is used for the exchange of goods and services. The value of goods and services are expressed in the form of money. Under the barter system, exchange of goods and services was very complicated. But in modern world, government is able to facilitate the people by collecting taxes in the forms of money in place of goods and services. Money offered the support of market and economy. Payments of all transactions can be made easily and conveniently with the help of money. By using money people can get any commodity in the market. Every commodity and service is bought and sold for money in the market. Money acts as a common medium for all exchanges. It is useful for conducting all trade and commercial transactions smoothly.
2] Standard of Value or Measure of Value: Money serves as the standard of value. It is used as a common measure of value. Money serves as the unit in terms of which the value of all goods and services is measured and expressed. Since every commodity is exchanged against money, the value of all goods and services are expressed in terms of money only. In India, the rupee is the standard of money and unit of account. The prices of all commodities are expressed in terms of money.
SECONDARY FUNCTION
1] Transfer of Value: Money helps in the transfer of value from one person to another and from one place to another. It serves both for time transfer and place-transfer of purchasing power. It does not involve any difficulty to transfer the value of different assets and properties from one place to another within the country or between two countries.
2] Store of Value: Money has ‘general purchasing power’. It is accepted at any time for goods or services and its value to a great extent remains constant. People can save and store purchasing power for future use out of their income. Many goods are perishable and can’t be stored for a long period. However, they can be marketed and can be converted into money, which can be permanently stored. In modern type of economy, many is stored in the form of currency notes and bank deposits. Money is the most liquid form of all assets.
3] Standard of deferred (delayed or postponed) payments: Moneys acts as a unit in terms of which deferred payments are stated. Money has made possible all present as well as future transactions. It provides as link between the present and future transactions. It makes borrowing and lending less risky.
CONTINGENT FUNCTIONS:
1] It improves productivity of capital: Money has liquid nature so liquidity nature of money helps in the mobility of capital and increase its productivity.
2. Basis of credit: Credit system is the backbone of modern economy. In this system money plays very vital role. Credit instruments are used in modern economy on large scale. Without money, credit instruments cannot circulate. A person can issue cheques only on the basis of credit.
3. Distribution of Social Income: After invention of money, it is now become possible to determine the share of every factor in production in terms of money.
4] Equalization of Marginal Utility: To get the maximum satisfaction, consumer earns the expenditure in such a way as to equalize these marginal utilities of expenditure in each use.
OTHER FUNCTIONS / ADDITIONAL FUNCTIONS:
1] Repayment Capacity: Money is accepted on general assumption so every firm keeps some amount of liquid money to sage guard its repayment capacity.
2] General Purchasing Power: Object of money to keep changing. It jumps on from one shoulder to another every time. So money is not used for one specific purpose only.
3] Motives: Money can be kept for day-to-day transaction purpose, emergency purpose like accident or sickness and businessman keep capital in liquid form to carry on speculative activities.
COMMERCIAL BANKING
MEANING: Commercial bank is a financial institution that operates for profit. It accepts deposits from the general public and extends loans to the households, the firms, and the government. In the modern age, bank plays very important role in production, trade and capital collection. Main functions of money are to collect the money as savings or deposits and lend them to others who can use them productively.
Definitions of Bank:
1] Dr. H.L. HART: A banker is one who, in the ordinary course of this business, honours cheques drawn upon him by persons from and for whom he receives money on current account”.
2] Prof. Kinley: “A bank is an establishment which makes to individuals such advances of money as may be required and safely made, and to which individuals entrust money when not required by them for use.
IT MEANS:
Banks accepts the deposits from general public.
Banks gives advances and loans to the needy people.
Classification of Banks:
1] Central Bank and 2] Other Banks.
In India, Reserve Bank of India is the central bank of India. It controls over all the banks in the country
Under the heading of other banks; banks can be classified as per their field like Agricultural Banks, Industrial Banks, Exchange Banks, and Commercial Banks. Agricultural banks works in agriculture field e.g. to provide loans to farmers in low interest rate. Industrial banks acts in industrial sector. It helps entrepreneurs or businessmen to improve their business. Exchange Banks offers services like to exchange foreign currencies. Commercial Banks provide loan to the traders.
FUNCTIONS OF THE COMMERCIAL BANKS
PRIMARY FUNCTIONS / BANKING FUNCTIONS:
1] ACCEPTING DEPOSITS: It is most important functions of commercial banks. By offering various deposit schemes, banks collect deposits from the people.
a) Fixed Deposit: In such account money is kept for fixed period, like one, two or three years. Deposited money cannot be withdrawn before the certain period. As compared with the other accounts rate of interest for such deposit is higher. Longer the period, higher the rate of interest.
b) Current Account: Actually such type of accounts are maintained or opened by businessman. Account holder can withdraw or deposit amount when he requires. No interest is allowed by on this account. A businessman can withdraw money several times in a day.
c) Savings Bank Account: It is a deposit account, which is operated by individuals for the purpose of savings a part of their income. Main object of such account to promote the habit of savings in general people. There are no restrictions on number and amount of deposits but withdrawals are restricted. The money can be withdrawn from this account either by cheque or by withdraw slip. Banks pay certain percentage of interest on the balance on savings account.
d) Recurring Deposit Accounts: Under this account, regular income earners deposits a certain amount of money at regular intervals for a certain period of time. An individual can deposits certain amount on his account for example Rs. 500 per month for continues 5 years. The period of this account is minimum 6 months and maximum 10 years. Bank offers attractive interest on such accounts.
2] GRANTING ADVANCES/LOANS:
Bank does not kept deposits only idle cash balances but after keeping certain cash as reserves; bank lend remaining cash to the people as loans or advances.
a) Overdraft: An overdraft facility is granted by the bank only those persons who have their current accounts in the bank. To meet the temporary needs of the customer, the bank mey permit the customer to overdraw the amount from the bank in excess of his balance is called overdraft. The interest is charged by the bank on actually amount is used by the customer. The overdraft is granted only for occasionally and for short period.
b) Loans: When a banker makes a lump-sum advance to the customers, it is called ‘loan. Interest is charged on the entire amount sanctioned. Bank does not consider whether the whole sanctioned amount is utilized or not. Loans are various types e.g. Term Loans, Personal Loans, Collateral Loans.
c) Cash Credit: It is short term credit given by the bank to any businessman to meet regular working capital needs. The bank opens a separate account in respect of cash credit. The borrower is allowed to withdraw / utilize from their account upto certain ‘limit’ against a bond signed by securities or any other eligible securities. Interest is charged only on the actual amount withdrawn by the customer.
d) Bills Of Exchange: It is type of discounting bill with the bank. If the holder of an exchange bill needs money immediately he can get it discounted by the bank. The bank deducts commission for itself and pays the present price of the bill to the holder. Bank retained the bill of exchange with itself till its maturity as a security.
SECONDARY FUNCTIONS / AGENCY FUNCTIONS:
1] Investment of funds functions: Commercial banks invest a part its surplus funds in government securities and earns for itself interest on such investments. From these investments bank does not earns more interest but such investments are for securities.
2] Transfer of Funds: Banks arrange transfer of funds cheaply and safely from one place to another place. Under this heading, bank transfers cheques means demand drafts drawn by one branch of bank to another branch of it.
3] The bank pays premiums of insurance policies on our demand through cheques.
4] The bank collects dividends or interests on deposits of their customers.
OTHER FUNCTIONS:
1] Credit or Debit Card Facility: Many banks offer debit or credit cards to their account holders to ease them to deposit or to withdraw money from the bank.
2] ATM: Bank also provides the facility of ‘all time money’ to their customers to get money different places and o different time.
3] Safe Deposit Vaults (Lockers): Bank provides facility of lockers or safe deposit vaults to their customers on minimum rent. So that, customer can set their valuable ornaments, important documents in the locker.
4] Foreign Exchange: Bank also facilitates their customer to transfer money from in country account to foreign country account. Bank also provides exchange of foreign currency.
5] Travellers Cheques: Bank offers to their customers’ ‘travelers cheque’ facility also. Except carrying so much money with them, customer may carry a cheque and can in cash in foreign country.
4] Transfer of Money: Bank can transfer money from one place to another place or from one account to another person’s account through cheques, drafts and mail transfer.
5] Standing Instructions: An account holder can give standing instruction to act on his behalf. E.g. bank can directly paid insurance premium, electricity bill, mobile bill, telephone bill, installment of loan or taxes on behalf of account holder after receiving standing instruction.
6] Bank can also collect dividend, interests, salaries, provident Fund or pension directly.
7] To act as a trustee: Bank acts as a trustee of individual, social institutions or charitable trust. To sustain, to protect the properties and to utilize funds in proper way are the acts of banks as trustee. If an individual confers responsibility to distribute the properties, as per will, bank is held responsible to act as per the will of deceased account holder.
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CENTRAL BANKING
It is very important banking structure in the banking sector of every country. This bank guides and regulates the activities of all the banks in the country. The central bank is treated as a national institution with national duties and responsibilities.
Central Bank is only one bank in the whole country. This bank controls all the other banks in the country. This central bank is the bank of all the banks in the country. There is no directly relationship between this bank and the people. Because it is the bankers bank. All the rules and regulations are decided by the central bank of all the banks in every country.
The Central Bank of our country is called ‘Reserve Bank of India.’ It was established on 1st April 1935 and it was nationalized on 1st January, 1949.
Definitions of Central Bank:
It is impossible to give exact and complementary definition of Central Bank. But on the basis of its functions some definitions are put forward:
W. A. Shaw: “The one true, but at the same time, all-suffering function of a central bank is control of credit.”
Samuelson: “A Central Bank is a bank of bankers. Its duty is to control the monetary base . . . and through control of this ‘high powered money’ to control the community of supply of money.” R. S. Sayers: “The business of a Central Bank as distinguished from a commercial bank is to control the commercial banks in such a way so as to promote the general monetary policy of the state.”
FUNCTIONS OF THE CENTRAL BANK
Functions of the Central Bank differ from country to country because of the economic condition of that country.
1] Monopoly of Note Issue: Issuing of currency notes is the prime and monopolistic function of the Central Bank. The privilege of issuing the notes associated with the Central Bank. Central Banks are given extraordinary monopoly of note-issue. The main function of the Central Bank is to bring monetary stability. Authority of issuing notes is not conferred to commercial banks because it would more confusing situation to the people of using the notes. It would not be satisfactory. Central Bank does not take advantage from the uncontrolled powers but follows the rules of issuing notes, which are conferred by the law. It is the compulsory to maintain to maintain the reserves of gold, silver, selected securities in fixed proportions to inspire the confidence among the people in the paper currency. It may be differ from country to country. In our country, authority of issuing notes is conferred on Reserve Bank of India. Central Bank brings about reliability in the notes circulation and avoids the danger of over issue of notes. Central Bank facilitates better regulation of note-issue. It gives notes a distinctive prestige. Central Bank has authority to control the credit creation activity of commercial bank.
2] Government’s Banker: Commercial banks perform the functions for common people means for customers like this Central Bank performs the functions for the Government. Central Bank acts as a Banker, Agent and Adviser to the government in every economic aspect. It keeps cash balance of the Government and maintains its accounts. The Central Bank receives deposits of money, cheques, drafts and also makes payment on behalf of the Government. It handles the public debt and undertakes the sale and purchase of securities on behalf of the Government. Central Bank also gives short-term advances to the Government. It also gives advice to the government in economic, banking, devolution of currency, budgetary and financial policies. It pays interest on the government borrowing.
3] Banker’s Bank: The Central Bank acts as a Banker’s Bank. In the country, the Central Bank is the financial decision maker for the commercial banks. The Central Bank acts as the custodian (guardian) of cash reserves of the other banks. Commercial bank keep part of their cash with the Central Bank. These reserves can be used in the difficult situation of the commercial bank and controlling the activities of the bank. Such deposits of the commercial banks strengthen the confidence of the people in the banking system of the country. The claims of the bank on another bank are settled by the Central Bank. The Central Bank uses its controlling power in such situation. The Central Bank is the guardian of the commercial banks.
4] It Is The Lender Of The Last Resort: The Central Bank always helps or gives supports to the commercial banks in their critical condition. It means the Central Bank provides timely financial help to the commercial banks. This financial helps is given in form of rediscounting facility or direct advance against Government securities but the Central Banks imposes some terms and conditions while granting such facility to the commercial banks.
5] Custodian of Foreign Exchange Reserves: The Central Bank also responsible to maintain the stability of internal and external value of the currency. All the reserves of a nation’s international currency are held by the Central Bank. The Central Bank keeps reserves of gold, silver and foreign exchange reserves at the appropriate level. Such reserves are also useful for meeting the adverse balance of payments position of the country.
6] Controller Of Credit: If credit is not effectively controlled and kept within the limits, it can have terrible consequences as credit money produces a deep impact on the economy. Thus, the Central Bank can bring stability in the internal price level and erase fluctuation in the foreign exchange rate by controlling the credit effectively. The Central Bank uses its qualitative weapons to control the volume and direction of credit. Bank rate, open market operations, change in reserve ratio etc. can be regulated by the Central Bank.
7] Central Clearance: It is the clearing house for the commercial banks. Every commercial bank has the member of the Central Bank means account holder so the claims and counterclaims of the member banks cab be settled with the minimum use of cash.
8] Informative Centre: The Central Bank has a statically data with them so it publishes economic statistic and other useful information on various aspect of the national economy.
9] Miscellaneous Functions: The Central Banks not only performs regulatory functions but also the developmental functions. The Central Bank also encourage the banking habits among the people, establishes the special financial institutions and agencies, development of money and capital market.
PUBLIC ECONOMICS
Public economics is considered the base of economics. Public economics consist of economic policies of government. It is essential to study the economic policies of government because government always implements their policies for the welfare of common people. Government budget is the statement of income and expenditure in detail. Period of budget is for one year.
Meaning of Government Budget
Budgets are not merely matters of arithmetic, but in a thousand ways to go to the root of prosperity of individuals and relation of classes and the strength of kingdom. A budget maps out the process of acquiring scares resources for government uses or for use under government direction. Budget means not balance sheet because it doesn’t shows the financial condition of the country. Government budget only shows the receipts and expenditure of a government for the year reference. A government budget is a financial plan covering expenditure and receipts of the government.
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