CBSE 2015 Class 12 Economics Outside Delhi Set-1

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Question : 11
Total: 18
Explain the "Bank of Issue function" of the central bank.
Solution:  
Bank of issue function of central bank implies that Central Bank has the exclusive authority to issue the currency (notes + coins). The currency issued by the central bank is known as 'legal tender money' i.e., the value of such currency is backed by the central bank. However, the currency issued by the central bank is its monetary liability. In other words, the central bank is obliged to back the currency issued with, assets of equal value such as gold coins and bullions, foreign exchange, etc. In addition to issuing currency to the general public, the central bank also issues currency to the central government of the country. That is, the central government if required, can sell its securities to the central bank and in return gets the required cash currency.
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