Functions of a Central Bank The modern banking system is two tiered. This means that at the bottom there are commercial banks i.e. the banks that we interact with on a day to day basis. They are then managed by a central bank which forms the next level in the hierarchy. The modern banking system provides central banks with considerably more rights and responsibilities. In this article, we will study the core functions that are performed by the modern day central bank . The most important functions are as follows: Monopoly over Issue of Currency Notes Prior to the introduction of central banking, every bank could issue its own notes. As such, the economy would be flooded with thousands of different types of notes. The people accepting these notes would have very little idea of what the notes were worth or could be redeemed for. As such, there was less trust in the banking system as a whole. This is when the central banks took over. Central banks, in modern times have been granted the