Money and banking final q's - Assignment Example

Allowing the central bank to monopolize the issuance of notes comes with various advantages. The central bank brings uniformity within the monetary system of circulating notes after issuance. Furthermore, the central bank has better capacity to monitor and maintain the supply of money in any country. The result is an increased public confidence in the monetary system. It is also easier to control paper currency. The central bank has adequate knowledge regarding the requirements of economy because of its position as the supreme in any country.

With this information, the central bank can alter and regulate the quantity of currency in the system based on requirements. Monopoly in distribution of legal tender by the central bank facilitates the ability to execute development of credit by other commercial banks. When it issues the notes, the central bank earns profit from the fees charged. Finally, allowing the central bank sole monopoly of issuing notes eliminates political interference by granting the institution autonomy. The second function of the central is operating as an agent, banker, and adviser to the government (Bordo, 2009, 434).

The central bank carries out same responsibilities as a commercial bank to its clients when acting as a banker to the government. Besides those of the state and county governments, it maintains accounts for the national or central government. It advances short-term loans to the governments, takes deposits from them, and collects cheques drafts from accounts held by the government. In the present society, central banks manage the supply of money. Central banks carry out this responsibility outside the control of politicians with the desire to attain designed goals.

Goals are many and include utmost growth, stumpy inflation, as well as attaining high levels of employment. Central banks create or destroy money using