The concept of central banks emerged with the establishment of the Bank of England in 1694. It is still believed that the concept of central banks did not exist until the 20th century. Basically, central banks were the solution to the problem of commercial banking systems at that time. The world recognized the need for a central bank during the times of great depression when economies were shattering. Also, with the decline of colonialism, nations all around the world decided to control their economic activities through central controlling mechanisms.

The major role of a central bank is to provide the economy with funds when commercial banks fail to cover the money supply. It prevents economies and especially banking systems from moving towards decline. Additionally, the central bank provides a country with currency and stale prices so that inflation does not rise to an extreme level. Not only this, but central banks also play a regulatory role in order to ensure a stable monetary policy.

Central banks are the sole providers of the printed notes which are circulated in the economy; this makes the selling and borrowing of goods possible. With the passing time, central banks have proven themselves as effective organizations, functioning in best ways possible. Central banks are an important source through which a country can save foreign reserves.

 

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