The statement that best describes the primary functions of a central bank is an institution that conducts a nation's monetary policy and regulates its banking system.
A central bank, is a financial institution that have a privileged control over the production and distribution of money and credit for a nation or a group of nations. In modern economies, the bank is responsible for the formulation of monetary policy and the regulation of member banks.
They are inherently non-market-based or even anti-competitive institutions. Although some are nationalized, many of other central banks are not government agencies and are often touted as being politically independent. However, it is not legally owned by the government because its privileges are established and protected by law.
The main feature of a central bank is its legal monopoly status, which gives it the privilege to issue banknotes and cash. Only the private commercial banks are only permitted to issue demand liabilities, such as checking deposits. Therefore, the primary functions of central bank is conducting a nation's monetary policy and regulates its banking system.
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