Match each traditional function of the Central Bank listed in Column I with its correct operational description in Column II.
- Banker to commercial banksMaintains statutory cash reserve deposits of commercial banks and operates the interbank clearing system.
- Lender of last resortProvides emergency liquidity assistance to commercial banks facing temporary credit shortages.
- Sole authority to issue currencyExercises exclusive legal power to print paper banknotes and mint metallic coins in an economy.
Answer
Banker to commercial banks matches with maintaining statutory cash reserves and operating the clearing house; Lender of last resort matches with providing emergency liquidity assistance to commercial banks; Sole authority to issue currency matches with exercising exclusive legal power to print notes and mint coins.
Each central bank role corresponds directly to its defined duty: acting as banker to commercial banks involves maintaining cash reserve balances and settling interbank payments; serving as lender of last resort involves making emergency credit available to banks experiencing short-term liquidity deficits; and possessing sole currency issuing authority involves exercising legal monopoly over printing notes and minting coins.
Step-by-Step Solution
Key Concept
Traditional Functions of the Central Bank