What Is a Central Bank?

A central bank is a financial institution that regulates the monetary policy of a country or region. It is responsible for issuing currency, controlling interest rates, and managing the money supply in an economy. The primary purpose of a central bank is to maintain price stability and promote economic growth by providing liquidity to banks and other financial institutions. Central banks also act as lenders of last resort when there are banking crises or panics.

Central banks have various tools at their disposal to influence the economy such as setting reserve requirements, open market operations, discount window lending, changing interest rates, and quantitative easing (QE). These tools can be used to increase or decrease the money supply in order to achieve desired outcomes like inflation control or stimulating economic activity during recessions. In addition to these traditional functions, some central banks are now taking on additional roles such as regulating commercial banks and overseeing payment systems.

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