Developmental Functions Of Central Bank | Foreign Operations In Central Bank
Part of the functions of the central bank of a country is to represent the country in financial and foreign exchange matters. Key foreign operation functions of a central bank are to maintain the exchange equalization account (external reserves), and to represent the government in financial institutions, and other financial transaction.
Main Foreign Operations Function Of Central Bank
- Maintenance of External Reserves (Foreign Exchange Management) – Foreign operations function of central bank goes hand to hand with the developmental functions of central bank, this central bank talks about how the central bank manages the foreign exchange of each country in such a way as to ensure that the country maintains adequate external reserves. The central bank monitors the acquisition and use of foreign exchange in the country. It also oversees the operations of the foreign exchange market. In doing this, the central bank determines the type of exchange rate system that the country will operates at each point in time. The central bank also intervenes from time to time in the foreign exchange market to influence the exchange rate of the country’s currency in order to achieve defined monetary and economic objectives.
- Representation In International Financial Institution – the foreign operations function of central bank in this stead ensures that the central bank of each country relates with the central bank of other countries to enhance international settlements of financial claims. It also represents the government in such international financial organisations like the international monetary fund, internal bank for reconstruction and development which also points to the developmental functions of central bank, and then the bank of international settlement.
- Debt Management Function – Management of public internal and external debt could be categorised as a debt management function of central bank although it can be referred to be under foreign operations function of central bank, the Central bank manages both the internal and external debts of the government. Internal debts are funds borrowed from within the country, while external debts are those obtained from sources outside the country. In each of these cases, the central bank determines the debt instruments. The central bank determines where and how to sources for funds from abroad and negotiate the terms of repayment of both the principal and interest. It is part of the management functions of the central bank to finance any deficits arising from government budgets. It also advises the government on the size of such deficits. The debt management function is a very important one because it affects both the present and future generations. If funds are borrowed on wrong terms or misused, the future generation bears the burden. But if the funds are borrowed on good terms and well utilized, it enhances economic development and favours both present and future generations, again debt management function of the central bank tends to point towards the developmental functions of central bank.
Developmental Functions Of Central Bank
- Development of the Money and Capital Markets – One of the key developmental functions of central bank is to enhance the development of the money and capital market, developmental functions is categorised as one of the functions after the traditional functions of central bank. Developmental functions of central bank has a touch of the foreign operations function of central bank, it helps to establish money and capital market institutions. For instance, the central bank helps to establish the Stock Exchange. To encourage the development of the money and capital markets, the central bank introduces new money and capital market instruments.
Research Development And Collection Of Statistical Data
As part of its functions, a central bank carries out various economic researches, which it publishes for public consumption. In Nigeria the central bank makes various publications including the central bank bullion, Economic and financial Reviews, Central bank of Nigeria Annual brief, CBN Occasional papers and the CBN annual balance sheet and accounts. In addition, the research and development collects data on various aspects of the economy. These data guides the government in formulating its fiscal and monetary policies. The central bank of Nigeria also publishes an annual statistical bulletin that provides data to interested members of the public on various aspect of the economy.
The developmental functions of central bank interchanges with other functions as central bank functions are so many to mention.