Central banks are public insituations with a variety of tasks assigned to them and these tasks vary from one country to another and so does the importance assigned to them also varies with passage of time. For instance, among the 29 countries of Organization of Economic Cooperation and Development (OECD), 17 countries have price stability as their assigned goal, two have price stability and payment system as their goals, while the remaining 10 have broader set of objectives.
Looking back, in the 19th century, financing the government deficit was the overriding task assigned to central banks, and economic historians assign war finance as prime consideration for constitution of many of the early central banks (Clapham, 1944 and Hamilton, 1945). The Bank of England, for instance, was created in 1694 mainly to finance the war-ravaged economy of England. As financial costs mounted year by year between 1688 and 1702 and accumulated to more than £14 mn debt, the Bank of England came into existence to finance such huge debt. Similarly, the first bank of the US was needed because the government had a debt from the revolutionary war, and each state had a different type of currency.
Alexander Hamilton, Economist conceived the bank to handle the colossal war debt and to create a standard form of currency. Similarly, to finance the government's developmental activities the Reserve Bank of India (RBI), the central bank of the country, was formed. The RBI automatically issued ad hoc treasury bills whenever the balances of the Government of India (GoI) went below the stipulated minimum balances of Rs. 50 cr at the end of each week. |
