The Role of Central Banks and Commercial Banks in the Economy

I. Introduction
Central banks and commercial banks are two of the most important financial institutions in the economy. It is important to understand the differences between the two in order to appreciate their respective roles in the economy.

II. Features of a Central Bank
A central bank is owned by the government and its primary objective is to create price stability. It is the only institution in a country that issues notes and coins. It also operates monetary policy and sets the rate of interest (base rate). It intervenes in foreign exchange markets to influence the exchange rate and is the lender of last resort to governments. Additionally, it supervises and regulates the financial system.

III. Features of a Commercial Bank
A commercial bank is owned by shareholders or is privately owned. Its primary objective is to make a profit. There are usually many commercial banks in a country. They exchange foreign currency, accept deposits from households and firms, lend to households and firms, and provide insurance services to households and firms.

IV. Differences between Central Bank and Commercial Bank
The main differences between a central bank and a commercial bank are in terms of ownership, objectives, number of banks in a country, and functions.

V. Importance of Central Bank and Commercial Bank in the Economy
The central bank plays an important role in maintaining price stability and regulating the financial system. The commercial bank plays an important role in providing financial services to households and firms.

VI. Conclusion
In conclusion, it is important to understand the differences between a central bank and a commercial bank in order to appreciate their respective roles in the economy. The central bank is responsible for maintaining price stability and regulating the financial system, while the commercial bank provides financial services to households and firms.

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