Question

Give any two reasons for giving the monopoly right of note issue to the Central Bank.

Explain currency authority function of the Central Bank.

With reference to the Central Bank, explain the following:

Monopoly of note issue

Answer 1

The central bank is the sole authority for the issue of currency in the country. All the currency issued by the central bank is its monetary liability. Notes issued by the central bank are circulated as legal tender money.

The monopoly of issuing notes promotes efficiency in the financial system because

1. It brings about uniformity in currency notes circulation.
2. It gives the Central Bank direct control over one of the components of money supply.