The main function of the central bank is to control the nation’s money supply i.e monetary policy, through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector. The central bank is also given the sole monopoly to issue the currency. Central banks everywhere act as bankers, fiscal agents and advisers to their respective governments. The central bank keeps the deposits of the government and makes payments on behalf of the government. Yet it does not pay interest on governments deposits. It also buys and sells foreign currencies on behalf of the government.The most important function of the central bank is to control the credit creation power of commercial bank in order to control inflationary and deflationary pressures within this economy.
