EconGuru Economics Guide » Central bank

Central bank

Central bank is a nation's or a group of nations' principal monetary authority overseeing the monetary system, such the Federal Reserve Bank and European Central Bank.

Central bank has a wide range of responsibilities including functioning as a bank for the government, issuing currency, regulating money supply and credit, and managing the interest rate as well as the rate of exchange. Goals are set to keep currency stability, low inflation and adequate employment with those measures.

However, the foremost important task of a central bank is to superintend the entire economy, devising methods to either accelerate it or slow it down. The primary weapon at a central bank's hand in order to do this, is the amount of circulating currency currently available in the economy. After circumspect inspection and analysis, a board of economists shall decide whether or not to carry out measures that will change the amount of money available in the market, thus either chopping off the purchase power of demanders or granting additional money to them so that they can buy more stuff, understandably, decelerating the economy or accelerating it.