Today all the countries have a Central Bank, which controls their entire banking sys­tem. The first Central Bank was the Swedish Risks Bank established in 1688. The Bank of England was established in 1694 and nationalized in 1946 under Bank of England Act, 1946.

These banks were established not to provide direct credit to trade and commerce, but to provide money to their governments and they were given special privileges over the issue of notes. In course of time the range of their operations widened and they began to render their governments a variety of services.

In the 19th century many other European countries established their own Central Banks. But the current Central Banking is the idea of 20th century and it took several decades to mature into the present form. The Federal Reserve Bank of USA was established in 1914.

An International Conference on Monetary System was held in 1920 at Brussels to consider the currency chaos after the First World War. It recommended that every country having a currency of its own should have Central Bank.


Now there is no civilized country which does not possess a Central Bank. In India the Reserve Bank of India Act was passed in 1934 and the Bank began functioning from April 1, 1935 (see Chapter 16 for more detailed discussion on RBI).

The name ‘Central Bank’ is given to that bank which is entrusted with the task of controlling the issue of money and regulating all the other banks of the country. Here the task controlling involves the managing of both expansion and contraction of the volume of money in the country.