Role of Central Banks

Question 1

What are the different roles of Central Banks

Answer 1

Banker to the Government

Banker to the Banks

Question 2

What is the Banker to the Government role

Answer 2

Central Banks may be responsible for managing a country’s national debt

They hold a country’s foreign currency and gold reserves

Question 3

What is the Banker to the Banks role

Answer 3

Commercial and Retail Banks may be required to hold cash reserves in a central bank account

This ensures these banks have reserves in a safe place and to settle interbank balances

Question 4

What 2 scenarios may lead to trouble for banks

Answer 4

Liquidity Problem

Solvency Problem