Central Bank (RBI in India) controls money supply, monetary policy, and banking system regulation. Functions: Note issuance (currency supply), Banker to government (managing government accounts and finances), Banker to banks (providing liquidity to banks in distress), Money manager (open market operations, interest rate control), Regulator and supervisor (bank licensing, prudential norms, consumer protection), Lender of last resort (emergency liquidity to banks). Tools: Open Market Operations (OMOs—buying/selling securities to adjust money supply), Discount rate (interest rate for lending to banks—higher rate contractionary), Reserve requirements (CRR, SLR—higher requirements reduce lending), Quantitative easing (buying assets during crises), Forward guidance (communication about future policy). Monetary policy goals: Price stability (inflation control), Financial stability (preventing banking crises), Full employment (supporting growth), Exchange rate stability. Independence: Modern practice suggests independent central banks achieve better inflation control; RBI has autonomy in policy decisions. Coordination: With government fiscal policy for better economic outcomes. Limitations: Long implementation lags, effectiveness dependent on financial system development. Indian context: RBI established 1935, nationalized 1951, operates under RBI Act with government coordination. ICAI focus: Functions, tools, policy goals, limitations. Exam tip: Central bank is "bank of banks"; different from commercial banks in function and power.