CENTRAL BANK VS COMMERCIAL BANKS — DIFFERENCES AND SIMILARITIES

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The central bank is a financial institution that is in charge of printing currency and implementing the monetary policies of the government.

A commercial bank, on the other hand, is any financial institution that accepts deposits and provides loans on a commercial basis.

Both financial institutions have their differences and similarities. 

Differences Between Central Bank And Commercial Banks

1. While the central bank is owned by the government, a commercial bank is owned by private individuals known as shareholders.

2. The central bank is a banker to the government whereas the commercial bank is a banker to the general public.

3. Commercial bank is profit-driven as it was established to carry out banking business on a commercial basis. The central bank, on the other hand,  is not profit-driven. Rather, Its main goal is to achieve government macroeconomic goals.

4. The central bank controls the credit creation of commercial banks and other financial institutions.

5. In most nations, the central bank has the monopoly of issuing currency, while the commercial bank has the monopoly of operating current accounts.

6. The central bank is the custodian of a country foreign currency whereas commercial banks are a dealer in the foreign exchange as they buy and sell foreign exchange on a commercial basis.

7. The central bank is the apex financial institution, regulating the activities of money market institutions and capital market institutions.

Commercial banks, on the other hand, mostly operate in the money market.

8. Every country has only one central bank, which has its offices at strategic locations. By contrast, Different commercial banks can exist in a country.

In Nigeria, for example, there is just one central bank, the Central Bank of Nigeria (CBN). In Nigeria, however, commercial banks such as United Bank for Africa (UBA), Firstbank, Ecobank, and others exist.

9. Central banks are usually country-specific, but commercial banks can operate both locally and globally.

Similarities Between Central Bank And Commercial Bank

1. Both financial institutions create money. While central banks issue legal tender, Commercial banks create money by providing credit to the general public.

2.  Loans are issued by both financial institutions. While commercial banks issue loans to the general public, central banks grant loans to the government and commercial banks when needed.

3. Both commercial banks and central banks trade in the money market. 

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