Central bank
A central bank, reserve bank, or monetary
authority is the entity responsible for the
monetary policy of a country or of a group of
member states. It is a bank that can lend
money to other banks in times of need.[1] Its
primary responsibility is to maintain the sta-
bility of the national currency and money
supply, but more active duties include con-
trolling subsidized-loan interest rates, and
acting as a lender of last resort to the bank-
ing sector during times of financial crisis
(private banks often being integral to the na-
tional financial system). It may also have su-
pervisory powers, to ensure that banks and
other financial institutions do not behave
recklessly or fraudulently.
Most richer countries today have an "inde-
pendent" central bank, that is, one which op-
erates under rules designed to prevent polit-
ical
interference. Examples
include
the
European Central Bank (ECB) and the Feder-
al Reserve System in the United States. Some
central banks are publicly owned, and others
are privately owned. For example,
the
Reserve Bank of India is publicly owned and
directly governed by the Indian government.
Another example is the United States Federal
Reserve, which is a quasi-public corpora-
tion.[2] The major difference is that govern-
ment owned central banks do not charge the
taxpayers interest on the national currency,
whereas privately owned central banks do
charge interest.[3]
Activities and
responsibilities
Functions of a central bank (not all functions
are carried out by all banks):
• implementing monetary policy
• controlling the nation’s entire money
supply
• the Government’s banker and the bankers’
bank ("leader of last resort")
• managing the country’s foreign exchange
and gold reserves and the Government’s
stock register
• regulating and supervising the banking
industry
The Bank of England, central bank of the Un-
ited Kingdom
• setting the official interest rate – used to
manage both inflation and the country’s
exchange rate – and ensuring that this
rate takes effect via a variet