Banking, Business

Difference Between Central Bank and Commercial Bank

Central Bank and Commercial Bank

Central Bank:

Central bank is an institution which is charged with the responsibility of managing the expansion and contraction of currency and credit for the maximum welfare of the country. Central bank basically works for the fulfilment of financial needs, economic stability and for the growth of banking system. The objective of central bank is not to earn the profit rather to work in the best interest of the nation or public. Central bank does not accept any kind of pressure of any political party or group while rendering its duties for the better interest of the country.

Commercial Bank:

Commercial bank is an institution which accepts deposits, lends money and transfer money from one place to another. Commercial banking involves in making profit by investing other’s money and not by investing commercial bank’s owns money. Modern commercial banks play a vital role in shaping the economic destiny of a country. They collect the scattered savings of people and make the available for society desirable and economically beneficial purpose. They are an intermediate party between those people who have surplus cash and those who are in need of cash.

Comparison Chart

Comparison Central Bank Commercial Bank
1. Formation Central bank is formed under
an act or ordinance of the
Commercial banks are formed
under the companies ordinance.
2. Foreign Exchange Central bank controls the
amount of foreign exchange in
the country.
Commercial bank has nothing to
do with it.
3. Growth of Banking It is the duty of central bank to
safeguard and promote the
banking sector.
Commercial bank is not
responsible for the growth of
banking sector.
4. Note Issue It has the sole authority of
issuing currency note.
Commercial bank cannot issue
currency note.
5. Lender Central bank is the lender of
money market
Commercial banks are the
member of money market.
6. objective The main objective of a central
bank is to promote the welfare
of country.
Their main aim is to earn
maximum profit.
7. Public Bank Central bank is not a public
bank and does not accept the
deposit of public.
Commercial bank provides
banking facilities to the general
8. Economic Policies Central bank plays vital role in
preparation of government’s
trade, monetary & fiscal policies.
Commercial banks help the
government for the
implementation of trade,
monetary & fiscal policies.
9. Transfer of Money It helps the government for
transferring money from one
place to another.
It helps the public and
government for transferring
money from one place to
10. Clearing House It provides clearing house
facilities to commercial banks.
Commercial banks are the
members of clearing house and
cannot provide such facilities.
11. Number of Bank There is only one central bank
in any country.
There may be more than one
commercial banks in any
12. Advisor Every central bank is a financial
advisor for its government.
Commercial banks are
considered the financial
advisors of public.
13. Ownership Central bank is owned by the
These banks are mostly privately
14. Metallic Reserve The country’s metallic reserves
are kept with the central bank.
Commercial banks do not keep
these reserves.
15. Management The higher management and
official are appointed by the
The shareholders of the bank
elect the Board of Directors who
in return appoint the
management of the bank.
16. Credit Creation Central bank not only creates
credit but also supervises its
process. It also puts some
limitations of commercial banks
in this regard.
Commercial banks have right to
create credit but on limited scale
or level.
17. Giving of Loans Central Bank provides credit to
the Government and commercial
Commercial bank provides
credit to the general public only.
18. Winding Up Central bank cannot be closed. Commercial bank can be closed
due to unsuccessful business.
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