How does Central Bank differ from commercial banks ?

1 Answer

There are several differences between central bank and commercial banks which are discussed below

  • The central bank is the apex banking institution in the country which controls and regulates the commercial and other banks in the country.
  • The central bank is generally owned and managed by the state while the commercial banks may be state or privately owned institutions.
  • The primary objective of a commercial bank is to earn profit or surplus, but the objective of the central bank is not to earn profit, but to stimulate the economic growth of the country and to create a stable monetary system in the economy.

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  • The commercial banks deal with the public directly whereas the central bank does not deal directly with the public. It deals with commercial banks and other institutions and the government of the country.
  • The central bank has the monopoly to issue notes in the country. It has got certain other functions like bankers’ bank, lender of last resort, credit control and control of foreign exchange, which are not performed by the commercial banks.
  • The central bank is the custodian of the foreign exchange reserves of the country and is responsible for maintaining the stability of foreign exchange rates. The commercial banks deal in foreign exchange only.
  •  The central bank acts as a lender of the last resort and grants credit to the commercial banks in the time of emergency. The central bank also acts as the national clearing house for all commercial banks. The central bank is the only authority to control the credit created by the commercial banks. But such functions are not performed by the commercial banks.
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