Central Banking in India and Abroad: Retrospect and Prospect

1. Today, central banks are perceived as multi-function entities performing a wide range of specialised activities. These generally include conducting banking operations for national governments, supervising and regulating banking institutions, managing the payments and settlement system and formulating monetary policy for the economy. Interestingly, the early central banks founded in Europe- Swedish Riksbank in 1668 and the Bank of England in 1694- were not intended to undertake these functions of a modern central bank. Instead, the initial impetus for these 'government- sponsored ' banks was much more basic, relating generally to the financial advantages that governments felt it would obtain from the support of such banks. This involved some favoured treatment, often supported by legislation, especially granting monopoly rights over the note issue. In the course of time, the privileged legal position of these banks in note issue and as banker to the government, naturally led to a degree of centralisation of reserves within the banking system in their hands, thus making them bankers ' banks. It was the responsibility that this position was found to entail, in the process of historical experience, which led these banks to develop discretionary monetary management, and assume overall support and responsibility for the health of the banking system at large.1 Early central banks were thus, characterised by evolutionary development rather than being programmed to undertake from the start what the