Central banks are the bedrock of modern financial systems, serving as the ultimate monetary authority within a country or a monetary union. Their core mandate is to foster a stable and healthy economy by ensuring price stability (controlling inflation) and safeguarding the stability of the financial system. In India, the Reserve Bank of India (RBI) exemplifies the crucial roles central banks play. These include: Formulating and Implementing Monetary Policy: Central banks set key interest rates (like the repo rate in India) and manage the money supply to influence borrowing costs, spending, and inflation. Issuing Currency: They hold the sole authority to print and distribute the national currency, ensuring its integrity and adequate supply. Banker to Banks: Central banks act as lenders of last resort to commercial banks, providing liquidity during crises to prevent systemic collapse, and manage banks' reserve requirements. Banker to the Government: They handle the government's financial transactions, manage public debt, and provide financial advice. Foreign Exchange Management: They manage a country's foreign exchange reserves to stabilize the currency and facilitate international trade. Financial System Regulation and Supervision: Central banks oversee and regulate commercial banks and other financial institutions to ensure their solvency, compliance with prudential norms, and overall stability, protecting depositors and preventing financial crises. The independence of central banks from political influence is widely regarded as essential for their effectiveness, allowing them to make decisions based on long-term economic well-being, which has ripple effects for individuals and businesses even in cities like Surat.
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