QS Study

Relationship between Central Bank and Government

Every central bank is owned and controlled by the government. The Central bank does all banking activities of government. It has the sole right to do the respective functions on behalf of the government. So central bank is the banker, adviser, and agent of the government. Here the relationship between central bank and government are discussed below:

Ownership: Every central bank is owned by the government. The government has the direct control over this bank and the central bank is compelled to work as a banker of government. Here central bank has the relationship with the government in case of ownership and direction.

Creditor and Debtor: Central bank provides a loan to government and to commercial banks at the time of fund crisis. In this regard, central bank sometimes acts as the creditor to the debtor.

The agent of government: This bank is the agency of the government. It makes different types of agreement on behalf of the government. Thus it makes principal and agent relationship.

Guardian of money market: It works as the guardian of the money market. Stability of currency value and sound flow of currency are important functions of this bank.

Note Issue: Only this bank can issue note and currency. By providing sufficient money to the market this bank ensures stable economic condition. Everything is done on behalf of the government.

Credit Control: This bank controls the circulation of credit in the money market for the purpose of reducing inflation. On behalf of the government, this bank takes every necessary step to control credit.

Economic stability: For the total development of a country economic stability is the must. For this purpose, central bank and government work jointly.

Advisor of the government: This bank works as the advisor of the government in an advisory situation on the credit policy formulation and even in the foreign trade.

Source of Information: This bank is the main source of economic information. All banks and government can be benefited by the information provided by this bank.

Control of Foreign currency: Central bank controls value of foreign currency on behalf of the government. Collection of foreign currency, providing the foreign currency of the exporter, supply, foreign currency to different project etc are done by this bank.

In conclusion, central bank and government arc related in case of ownership, agent, controller, accountant etc. But central bank and government are worked as the partner of one another.

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