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Relation between Government and Central Bank

The relationship between the government and the central bank can be established in the joint ownership of government, private, public and private banks. However, regardless of its ownership, the government has a close and direct relationship with the central bank of each country.

According to M. H. Dekock, “Central banks everywhere fulfill the functions of banker, agent and advisor of the government.”

Below is a discussion of the government’s relationship with the central bank:

Ownership:

Although the central bank is established in government or public-private joint ownership, the central banks of most countries in the world are owned by the government. In addition, the central bank is managed and regulated under the direct supervision of the government as it has a large share of government shares even though it is jointly owned by the government and the private sector. Thus the central bank has a direct relationship with the government for proprietary reasons. “Relation between Government and Central Bank”

Control relations:

In almost every country in the world, the government acts as the regulator of the central bank. The government passed special laws for such management and control. Therefore, the government maintains maximum control over the central bank by law, regardless of whether the central bank is government-owned or jointly owned by the government and the private sector.

Banker of the government:

As the sole institution of the country, the central bank acts as the banker of the government. On behalf of the government, the central bank maintains government funds and accounts, conducts transactions domestically and internationally, and performs other functions, including lending in the financial crisis. This created a banker-customer relationship between the two parties.

Advisor and agent of government:

The central bank acts as advisor to the government in formulating and implementing monetary policy and plans. The central bank also acts as a representative of the government at the national and international levels, executing agreements with various parties, settling debts and other representative functions.

Information supplier of government:

The central bank is a very reliable and trustworthy institution of the government. Therefore, the government can collect any kind of necessary information on financial matters from the central bank. This strengthened the relationship between the government and the central bank. “Relation between Government and Central Bank”

Lender and receiver of credit:

The government borrows from the central bank in times of financial crisis. The central bank not only lends to the government, but also helps the government in raising debt by selling government securities such as treasury bills, treasury bonds, etc. As a result, the relationship between the lender and the borrower develops between the two parties.

Issuer of notes and coins on behalf of government:

At present, the central bank is the only institution authorized to issue notes and coins in all countries of the world. But in case of circulation of notes and currency, the central bank has to get the permission of the government. In order to keep the country’s economy afloat, the central bank issues and regulates notes and currencies according to market demand on behalf of the government. As a result, the central bank maintains direct contact with the government. .

Reservever and administrator of foreign currency:

The central bank conducts various activities on behalf of the government as the custodian, director and regulator of foreign currency. The central bank reserves foreign exchange reserves to keep the foreign exchange rate favorable. Moreover, in order to keep the import and export in line with the economy of the country, the bank manages and controls the foreign exchange business. The central bank maintains good relations with the government by carrying out such activities on behalf of the government.

Credit control:

The central bank controls the amount of loans given by commercial banks to the government. For example, the Central Bank of Bangladesh implements the government’s policy on disbursement of agricultural loans and industrial loans through commercial banks.

Balanced economic development:

The central bank and the government jointly strive for economic stability and momentum by ensuring balanced economic development of the country through control of money market and price level and efficient use of resources. As a result, a cooperative relationship is created between them.

In the light of the above discussion, it can be said that the central bank has a direct and legal relationship with the government. In addition, both of them work as partners for the economic welfare of the country for the welfare of the people. In this context, Prof. R. S. Sayers said, “The central bank is a special organ of the overall administration of the government, which plays an effective role in implementing the economic policies of the government. ”