IT 1081C Lecture Notes - Lecture 17: Foreign-Exchange Reserves, Reserve Requirement, Commercial Bank
Document Summary
The central bank acts as a banker to the government - both central as well as state governments. The government carries on short term borrowings by selling ad-hoc treasury bills to the central bank. The central bank is the sole authority for the issue of currency in the country. Firstly, because this leads to uniformity in the issue of currency. Secondly, because it gives central bank direct control over money supply: the central bank is the sole authority for the issue of currency in the country. All currency issued by central bank is its monetary liability. This means that the central bank is obliged to back the currency with assets of equal value. These assets usually consist of gold coins, foreign securities and domestic governments local currency securities: the country"s central government is usually authorized to borrow money from the central bank.
