Who is the country banker? Explain three key features.

The country banker is the central bank of the country. RBI is the central authority that can authorize and issue the currency note and coins which are widely accepted as the medium of exchange. They act on behalf of the central government in most of the financial perspective of the country. RBI is the central government institution that controls all formal sector loans. All the commercial banks and many other financial institutions are supervised under RBI. RBI is the central bank of India, and it is the apex bank in the country. One of the main function of the central bank is to supervise all the commercial banks.

Features

• Monetize the currency

The central bank is the sole authority to print the currency in the economy. No other financial institution in the country has the authority to do that.

• Controller of credit

To control the credit, the central bank will increase or decrease the cash reserve ratio (CRR) which is kept as a reserve by all commercial banks in the central bank. When the economy is in inflation (continuous rise in the price level), then the central bank will increase the CRR which will reduce the lending capacity of the commercial bank and the process is reversed when there is deflation.

• The controller of the commercial bank

The central bank controls all the commercial banks in the economy. Any expansion in the commercial bank is taking place; it should be from the prior permission of the central bank.