Question

Which of the following is not a function of a Central Bank?

• A. Controls money supply
• B. Acts as a banker to the government
• C. Accepts deposits and loans to people
• D. Issues currency of the country

Answer 1

The Correct Option is C

Central Banks regulate the economy, not directly interacting with individual depositors or borrowers.

Answer 2

Central Banks play a crucial role in regulating the economy, but they do not typically interact directly with individual depositors or borrowers. Instead, their primary responsibility is to manage the overall monetary policy and ensure the stability of the financial system.

Central Banks, such as the Reserve Bank of India (RBI) or the Federal Reserve, influence the economy by controlling interest rates, money supply, and inflation. They implement policies that affect commercial banks, financial institutions, and broader economic conditions, rather than engaging with individual consumers directly.

For example, central banks use tools like the repo rate, reverse repo rate, and bank rate to regulate the amount of money circulating in the economy. They also set reserve requirements for commercial banks and conduct open market operations (buying and selling government securities) to control liquidity and influence economic activity.

While central banks do not directly lend to individual borrowers or accept deposits from individuals, they play an essential role in shaping the economic environment in which commercial banks operate. Through their policies, they indirectly impact interest rates, credit availability, and inflation, which in turn affect consumers and businesses.