We know that most of our monetary and financial activities involve transactions made with banks. These banks are governed by government regulations and operate under strict supervision of the central bank.
The central bank acts as the core of all banks and financial institutions. It has a wide range of functions and responsibilities in the monetary system of a country.
Among the functions of the central bank is overseeing the policies in the banking system and making it sure that these policies are being followed. The central bank is also responsible for the issuance of currencies, and management of exchange reserves. It also serves as the main bank of the government. It also monitors the activities of commercial banks and assists in extending loans whenever the need arises.
The central bank mainly acts as the administrator of Federal monetary reserves. It also determines and regulates interest rates that greatly affect the economy. Policies involving the buying and selling of treasury bonds and bills are implemented by the central bank. The central bank also takes care of gold reserves of the country. It also performs a behind the scene role in the negotiations of international monetary transactions.
The central bank as a whole performs the same functions as the other types of banks. It only has other functions that it performs in connection with transactions involving the international monetary system and other financial transactions of the government. In the structure of the monetary system, you could consider the central bank as its core overlooking financial activities of banks and other financial institutions.