What is the main function of the central bank in the banking system?

The primary function of a central bank in the banking system is to regulate banks and formulate monetary policy. The central bank plays a pivotal role in maintaining the stability of the financial system by overseeing banking institutions, ensuring they operate safely and soundly, and complying with relevant laws and regulations.

Moreover, formulating monetary policy is crucial for managing the country's economic stability. This includes controlling inflation, influencing interest rates, and managing the money supply to foster economic growth. By adjusting these levers, the central bank seeks to maintain economic stability, which can affect employment rates and consumer confidence.

Regulating banks involves supervision, providing guidelines for banking operations, and creating a secure environment for financial transactions. This helps to safeguard depositors' funds and maintains public trust in the financial system. Hence, the central bank is essential for the functioning and stability of the entire banking ecosystem.