What is the function of reserve deposits in a central bank account?

The function of reserve deposits in a central bank account primarily revolves around maintaining the health of the financial system. Central banks require commercial banks to hold a certain amount of their assets as reserves, either in cash or as deposits with the central bank. This mechanism ensures that banks have sufficient liquidity to meet customer withdrawals and maintain stability in the banking system.

Having these reserves helps mitigate the risk of bank runs and financial crises, as it ensures that banks can back up their liabilities. When banks hold adequate reserves, it promotes confidence in the banking system, prevents excessive lending, and helps control inflation by managing the money supply. Overall, reserve deposits play a critical role in ensuring the stability and proper functioning of the financial system.

The other options do not accurately capture the primary function of reserve deposits. While central banks do incur operational costs, that is not the main purpose of reserves. Settling interbank transactions is a function of the interbank payments system, which relies on but is not limited to reserve holdings. Providing investment opportunities falls outside the regulatory and operational scope of reserves, as their primary role is related to liquidity and stability rather than investment.