What is the difference between Central Bank and Commercial Bank?

There are certain basic differences between a central bank and a commercial bank. They are:

(i) The central bank is the apex monetary institution, which has been specially empowered to exercise control over the banking system of the country. The commercial bank, on the contrary, is a constituent unit of the banking system.

(ii) The central bank does not operate with a profit motive. The primary aim of the central bank is to achieve the objectives of the economic policy of the government and maximise the public welfare through monetary measures. The commercial banks, on the other hand, have profit earning as their primary objective.

(iii) The central bank is generally a state-owned institution, while the commercial banks are normally privately owned institutions.

(jv) The central bank does not deal directly with the Public. The commercial banks, on the contrary, directly deal with the public.

(v) The central bank does not compete with the commercial banks. Rather it helps them by acting as the lender of the last resort.

(vi) The central bank has the monopoly of note-issue, whereas the commercial banks do not enjoy such right.

(vii) The central bank is the custodian of the foreign exchange reserves of the country. The commercial banks are only the dealers in foreign exchange.

(viii) The central bank acts as the banker to the government, the commercial banks act as bankers to the general public.

(ix) The central bank acts as the bankers' bank : (a) The commercial banks arc required to keep a certain proportion of their reserves with central bank ; (b) the central bank helps them at the time of emergency ; and (c) the central bank acts as the clearing house for the commercial banks. But, the Commercial banks perform no such function.