CENTRAL BANKING

                           CENTRAL BANKING

                                                     The Central Bank is the top most banking institution with control over the entire currency and banking system of a country. It occupies a very important position in the banking system of a country. It occupies a very important position in the banking field and plays a vital role in the economic development of a nation. It acts as a leader of the money market. It supervises, controls and  regulates the activities of banking institution. The Central Bank is the fiscal agent of the government and manages the monetary system of the country. Central Banking refers to a special group of powers to control the total stock of money in a country. A Central Bank controls and directs other banks and renders services to them.

      History of Central Banking

   This Riksbank of Sweden, the Central Bank of Sweden, was the first Central Bank to be established in the world. It was established in 1656 as a privately-owned bank. Later, in 1688, it was converted into a state-owned bank.

    Though the Riksbank of Sweden was the first Central Bank to be established in the world, it was not recognised as the first full-fledged central Bank of the world, as it did not play then the role of a full-fledged Central Bank. On the contrary, the Bank of England, which came into existence much later than the Riksbank of Sweden was recognised as the first Central Bank of the world, because it was the first to perform the true functions of a real Central Bank and assume the character of a full-fledged Central Bank . The Bank of England was established in 1694 by a act of the parliament.

                                     The successful working of the Bank of England as a Central Bank stimulated the development of Central Banks in a few other countries in the 19th century. For instance, the Bank of France, the Central Bank of France, was set up in 1800. The Bank of Russia, the Central Bank of the U.S.S.R., was established in 1860. The Bank of Japan, the Central Bank of Japan, came into existance in 1882. The Central Banks of countries like Belgium,Spain , Netherlands, Denmark , Germany, Egypt, Algeria, etc. also came into existence in the 19th century.

    However, the real development of Central Banks took place only since the beginning of the 20th centuary. The International Monetary Conference held at Brussels in 1929 recommended the setting up of Central Bank in every country. Following the recommendation of this Conference, Central Banks were established in several countries of the world in the 20th century.Some of the famous Central Banks that came into existence in the 20th century were the Federal Reserve System of the U.S.A., the central Bank of U.S.A., established in 1913, the Bank of Canada, the Central Bank of Caneda, set uo in 1934, the Reserve Bank of India, the Central Bank of India, established in 1935,etc.,

     The financial strength of a country mainly depends on the soundness of the policies of Central Banking. There are certain fundamental objectives which are to be fulfilled by the Central Bank .They are.;
(1) National interest
      Central Banks are established to serve the interest of the nation. Central Bank is an organ of government, therefore, it must co-ordinate with those activities which are essential for the welfare of the people.
(2) Monetary and fiscal stability
        Most of the monetary and fiscal policies are formulated by Central Bank. Therefore, the Central Bank must aim at the stabilisation of monetary and fiscal activities of the country. Currency and credit are the two main organs of these policies. The Central Bank should aim at stabilising the effective supply of money to avoid disturbance in the economy.
(3) Economic development
        The Central Bank should aim at the promotion of economic activities. Developed countries may easily experience the crisis or excessive inflation. Therefore, the Central Bank Should curtail money supply in the country. The developing countries may be benefited by the credit and currency expansion activities. Therefore, the Central Bank should adopt economic growth as its objective.