KENYATTA UNIVERSITY
SCHOOL : ECONOMICS
DEPARTMENT : APPLIED ECONOMICS
NAME : LAGAT KIPRUTO ISAAC
REGISTRATION : K16 /1749/2012
LECTURER : DR. STEVE MAKORI
TASK : DISCUSS FUNCTIONS OF
CENTRAL BANK OF KENYA
FUNCTIONS OF CENTRAL BANKS OF KENYA
INTRODUCTIONS
Central bank can generally be define as financial institution responsible for
overseeing the monetary system for a nation, or a group of nations, with the goal of fostering economic growth without inflation. Central bank works as an institution whose main objective is to control and regulate money supply keeping in view the welfare of the people. The followings are its functions;
Monopoly of note. This is primarily the main function of central bank. Central bank controls the issue of notes and coins (legal tender). Usually the central bank will have a monopoly of the issue although this is not essential as long as the central bank has power to restrict the amount of private issues of notes and coins. This function has the following advantages; Central bank controls the credit creating power of commercial bank, People have more confidence in the currency issued by the control bank because it has protection and recognition by the government, The system of note issue has some advantages. If the central bank of a country has the monopoly of note issue.
2. Lender of the last resort. The central bank should oversee the financial sector in order to prevent crises and act as a lender of last resort to protect depositors, prevent widespread panic withdrawal, and otherwise prevent the damage to the economy caused by the collapse of financial institutions.
3. Credit control. This is the most important functions of central bank as it controls the volume of credit for bringing about stability in the general price level and accomplishing various other socio-economic objectives. The central bank has acquired the rights and powers of controlling entire banking. Central bank can adopt various quantitative and qualitative methods for credit control such as bank rate, open market operation, changes in reserve ratio, selective controls and moral situate
Bankers, Agent and adviser to the government. Central bank holds the government’s bank account and performs certain traditional banking operations for the government such as deposits and lending. It also manages government
departmental undertakings and government funds and where there is a need gives loan to the government. From time to time central bank advices the government on monetary, banking and financial matters.
Central banking in developing countries. Underdeveloped countries lack capital formation whose main causes are lack of savings and investment, therefore central bank can chip in and that important role of promoting capital formation through mobilizing savings and encourage investment.
The central bank also acts as the official agent to the government in
dealing with its gold and foreignexchange matters. The government reserves of gold and foreign exchange are held at the central bank.
The central bank has power to control the amount of credit-money created by banks. In other words it has the power to control, by either direct or indirect means of money supply.
Clearing agent. Central bank is the custodian of the cash reserves of the
commercial banks and therefore acts as the clearing house for these banks. These services of clearing agent have the following advantages; it keeps the central bank fully informed about the liquidity position of the commercial banks, it reduces the withdrawals of cash and these enables the commercial banks to create credit on a large scale, it economizes the use of cash by banks while settling their claims and counter-claims.
REFERENCES
1.
Black, T. (1981). Money and banking contemporary practices, politics and
issues: Plano, Texas Business Publications.
2.
Kamerschen, D, (1984). Money and banking: Cincinnati s. western
publisher company.
3.
