The RBI (Reserve Bank of India) is the central bank of our country.  Central Bank controls and regulates the volume of credit in the country in addition to the supply of money.

Functions of Central Bank – There are several functions of central bank, which are discussed below

1. Issue of Currency Notes – The central bank of a country enjoys the monopoly that exclusive rights for issues currency notes. The currency notes issued by the Central Bank are declared unlimited legal tender throughout the country. However, ir has to maintain certain reserves of foreign exchange, gold, and other government securities to back the issue of notes are required by law.
2. Banker’s Bank – The central bank acts as the banker’s bank. Commercial banks are required to keep a certain portion of their total deposits in the form of cash reserves with the central bank because of statutory requirements. Thus, central bank centralizes the reserves of commercial banks. These reserves ensure liquidity and impart stability to the banking system. If a commercial bank is in trouble, the central bank can render timely assistance out of these reserves. In keeping these reserves, the central bank also acts as a central agency for clearing interbank indebtedness.
3. Government’s Banker Advisor – The central bank provides banking facilities to the Government as the commercial banks render banking services to the public. As banker and agent to the Government, the central bank makes and receives payments on behalf of the government. The central bank also gives advice to the Government on all monetary and economic problems. Thus, it acts as an economic advisor of the government.
4. Lender of the Last Resort – As a banker’s bank, the central bank undertakes to extend financial accommodation to commercial banks in times of their needs. If any crises, commercial banks may approach central bank for funds as it is the lender of the last resort. It provides aid to any banks in trouble to prevent it’s failure.
5. Custodian of Metallic and Foreign Exchange Reserve – The central bank acts as the custodian of the nation’s gold and foreign exchange reserves. It administers exchange control to economize the use of foreign currency and to maintain exchange stability.
6. National Clearing House – The central bank keeps the cash balances of all commercial banks. It facilitates the clearance and settlement to avoid inconvenience associated with the use of money.
7. Controller of Credit – The central bank is the controller of credit system in the country. It seeks to regulate the credit system to encourage genuine economic activities and discourage reckless expansion of unproductive and undesirable credit.

Thud, the central bank performs the above functions to achieve the main objectives of economic development of the country.