Central Bank is a financial institution which is responsible for changing the expansion and transaction of money in the large interest of the nation. A central Bank perform many functions but some main function is as under:

It has a sole or near monopoly to issue the currency note. It follows any principal for doing this function. Bank of England issues the currency note under the principle of fixed fiduciary limit when State bank of Pakistan followed the proportional reserve system.

It advises the government on all financial matter like inflation, deflation, and devaluation. It represents the government in all international monetary conference. It surveys the economy, collects the data and publishes it before the budget. It preserves the foreign exchange reserve. It fixes the rate of exchange and it buys and sells the foreign exchange. It provides the locker serves for all. It collects the taxes which are applied by the government. It disburses the government expenditure. It advances a short-term loan to government and it keeps the government surplus deposits

It leads and guides the commercial bank. The banks are to obey all its order and direction. No banks can open, transfer and close any of its branches without its permission. Every bank has to furnish its assets and liabilities in the form of balance sheet regularly. Every hank has to open its account in the central bank with its times and demand liabilities (current & Fixed A/C). The bank has also to keep some cash against the deposit which is called liquidity deposit. The central bank provides the clearance house facility to the scheduled bank. It is also the last option for the banks which provide them a loan by re-discounting their bill of exchange.

It is responsible to expand and contract the money supply. It increases the rate of economic development with investment. It boosts up his growth of the economy. It tries to get the full employment level. It also tries to keep the value of money stable. For that, it adopts bank rate policy, open market operation. It changes the reserve ration for creating a loan. It also applies the rushing of credit to control the money supply. Efforts are made to expand and contract the supply of money according to the needs of the economy.