Question

The central bank of a country is the banker's bank. Justify for or against by giving two reasons.

Answer 1

For:

1. Lender of Last Resort: The central bank provides emergency funding to commercial banks experiencing liquidity difficulties, ensuring the stability of the banking system.
2. 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.

Answer 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.