Difference between Central Bank and Commercial Bank
Let’s learn about central bank and commercial bank and key differences between a central bank and commercial bank.
We all know about banks. But do you know what is a commercial bank and what is a central bank? Usually, the banks that we see, where we open a bank account and transact, are called commercial banks.
On the other hand, there is an institution to regulate the money and banking system, print and control currency and regulate the overall economic structure of a country which is the central bank. Although it is a bank, it does not perform any banking activities like opening accounts, or depositing customer’s money.
Let’s first briefly know what are central banks and commercial banks.
What is Central Bank?
The central bank is the regulatory agency that governs the monetary policy of a country, forms the economic structure, controls, prints currency, controls the currency and above all controls the banking system of the country.
The central bank of Bangladesh is Bangladesh Bank. It was established on 16 December 1971 through the Bangladesh Bank Order, 1972. Its executive head is called the Governor.
The central bank is essentially the bank of banks. It is the job of the central bank to register and regulate new commercial banks.
It preserves the country’s foreign exchange reserves. Besides, it fixes the exchange rate of it’s currency against foreign currencies. Printing of banknotes and the introduction of currency in the market is also one of the responsibilities of this bank. It also serves as the treasury of the government.
What is a commercial bank?
A bank that accepts deposits from customers (public) and distributes loans for profit is called a commercial bank.
The banks that we see in our area, where we deposit money by opening an account, withdraw money, receive money from abroad and take loans, are commercial banks.
Difference between Central Bank and Commercial Bank
| Topic | Central Bank | Commercial Bank |
|---|---|---|
| Objective | The central bank acts in the overall interest of the country as guardian of the banking business and currency market | The objective of commercial banks is to earn profit through the lending business |
| Formation | Formed through special Act of Govt. | It is formed according to the company and banking laws existing in the country. |
| Member | The central bank acts as the guardian of the country’s currency market. | Commercial banks act as members of the country’s money market. |
| Ownership | The central bank is government owned. | Commercial banks are public, private and public-private owned. |
| Policy Creator | The central bank creates all monetary policies and determines interest rates in an economy. | Commercial banks do not create any policies for an economy. |
| Deposit and Loan | The central bank does not accept any deposits or loans from the public. | Commercial banks accept deposits from people through various accounts and earn profits by lending these funds. |
| Branch | Central Bank has no branches. | Commercial banks can open various branches in the country and abroad and conduct operations. |
| Represent | Acts as a representative of the government. | Acts as the representative of the customer and central bank. |
| Clearing House | The central bank handles inter-bank transactions and settles debts. It is called the clearing house. | Commercial banks assist in the management of the clearing house process. |
| Foreign Currency | The central bank holds foreign exchange reserves and regulates transactions. | Foreign currency can only be transacted with the permission of the Central Bank. |
