Central banking functions have evolved over a period of time
in accordance with the prevailing economic environment. The
functions of the RBI can be broadly categorized into currency
function, monetary policy function, developmental function,
regulatory and supervisory functions, serving as a banker to the
banks and being a banker to the government. The functions of note
issuance and reserve maintenance have been the most
traditional functions of the central banks. A number of central banks were
initially established predominantly for being bankers to the
government. This function has also undergone review and
modification in recent years and many of them have now ceased to finance
their governments directly, though as in India, they continue to act as
a sovereign debt manager. Further, maintaining the internal and
the external value of the currency has emerged as the key objective
of monetary policy. Moreover, with the development of the
financial sector, the lender-of-the-last-resort function grew to
encompass the role of a regulator and a supervisor. In developing
economies, central banks have assumed many new functions that focus on
development of markets, institutions and ensure effective
communication. Moreover, while India's financial institutions and
regulatory structures have been developing gradually, a growing and
increasingly complex market-oriented economy with greater
integration with global trade and finance requires deeper, more
efficient and well-regulated financial markets.
This necessitates a
concerted push toward the next generation of financial reforms.
In these uncertain times, price stability and overall financial
stability is more important than ever to keep the growth from
being derailed by external shocks. Of late, in most of the emerging
economies as also in India, the maintenance of price stability is
being given utmost importance as it touches the lives of the people,
who are most vulnerable to the vagaries of inflation.
Further, widening the task, the unwavering focus
on the financial stability has become the single most important
function of central banks. However, the task is easier said than done
irrespective of the stage of economic development. Today, central
banks all over the world are facing numerous dilemmas and
challenges while discharging their responsibilities. Both the developed and
the developing economic structures have their own problems as far
as issues relating to financial stability are concerned. Central
banks need to respond accordingly to tackle these problems. |
