Which of the following describes a function of the central bank?

• A. Clearing between banks
• B. All banks are required to have an account at the central bank
• C. Cash reserve facility
• D. Regulating stock markets

Answer: (B)

A central bank’s fundamental role includes being the bankers’ bank and managing the payments system. Requiring every commercial bank to hold an account at the central bank provides the essential plumbing for the whole financial system: it allows interbank payments to be settled reliably, it enables the central bank to hold bank reserves and influence liquidity, and it gives the central authority the leverage to implement monetary policy. With all banks operating through these central-bank accounts, the central bank can monitor and influence money supply, intervene when needed, and ensure orderly settlement of funds.

While interbank clearing systems and reserve facilities are important related functions, the formal requirement that each bank has an account with the central bank is the foundational mechanism that makes those functions possible. Regulating stock markets, on the other hand, is typically the remit of securities regulators rather than the central bank.