Before learn(ing) more about the Central Bank, you should know What a central bank is. It is a financial organization that creates monetary policy and oversees member banks. It usually has special authority over how money and credit are produced and distributed for a country or a group of countries.
Central banks are not based on market principles and can be seen as anti-competitive. While some are owned by the state, many central banks operate independently of the government and are considered politically neutral. Still, even if a central bank isn’t officially government-owned, its special rights are created and safeguarded by law.
A key aspect that sets a central bank apart from other banks is its exclusive legal right to create money, allowing it to issue banknotes and cash. In contrast, private commercial banks can only offer demand liabilities, like checking accounts.
Learn more about Central Bank
Central banks have different responsibilities based on the country, but they typically focus on three main areas.
Central banks manage the money supply in a country. They affect market feelings by issuing money and deciding interest rates for loans and bonds. Usually, they increase interest rates to slow down growth and prevent inflation, while lowering them to encourage growth, business activity, and consumer spending. This way, they control monetary policy to steer the economy and reach goals like full employment.
They oversee member banks by setting rules for capital, reserves, and deposit protection, among other methods. They also offer loans and services to the country’s banks and government, and handle foreign exchange reserves.
A central bank serves as an emergency lender for struggling commercial banks and other institutions, and occasionally for the government as well. By buying government debt, the central bank offers a more appealing option than raising taxes when the government needs more money. You can read History of Central Bank.
Conclusion
A central bank manages a country’s money policy and supply. It usually has exclusive rights to create and distribute money. During economic troubles or high inflation, it uses various tools to help stabilize the economy. The Federal Reserve serves as the central bank for the United States.