Central Bank : an Apex Financial Authority!
A bank is called a central bank because it occupies a pivotal position in the monetary and banking structure of the country in which it operates.
Thus, the central bank acts as the leader of the money market and in that capacity it supervises, controls and regulates the activities of the commercial banks.
It is recognised as the apex monetary institution or the highest financial authority.
The central bank has been defined by R.P. Kent as an “institution charged with the responsibility of managing the expansion and contraction of the volume of money in the interest of the general public welfare.” Thus, we may define the central bank as an institution whose main function is to help, control and stabilise the monetary and banking system of the country in the national economic interest.
The above stated definition of a central bank clearly justifies its need and importance. The banking system can work as a system only if there is an institution at the top to direct its activities. Without such a direction, the system would be nothing but a collection of unconnected units, each following an independent policy, often contradictory to one another. Thus, the central bank is essential to regulate the activities of commercial banks, integrate them, and direct their policies according to the best national economic interest.