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Question
The central bank of a country is the banker's bank. Justify for or against by giving two reasons.
Solution 1
For:
- Lender of Last Resort: The central bank provides emergency funding to commercial banks experiencing liquidity difficulties, ensuring the stability of the banking system.
- Regulation and supervision: It supervises and regulates commercial banks by establishing norms and guidelines to ensure financial stability and public trust in the banking system.
Solution 2
The central bank functions as the government's banker, agent, and advisor. It handles payments and receipts on behalf of the government, similar to a regular bank. As the government's agent in financial matters, the central bank offers advice on monetary and banking issues.
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