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What is a central bank and what does it do?

Question by Sydney Mulunda On 20 March 2020, 18:09:16


Please write a genuine and meaningful answer to get a good ranking.

Answer by Sydney Mulunda On 20 March 2020, 18:22:24

Central banks across the world perform many important functions which are key to enabling the economies of different countries to grow. Some of these functions are:

  1. Issuing currency- Central banks are the only institutions mandated to issue currency in most countries.
  2. They regulate the flow of money in the economy. This is a very important function that is carried out by central banks because it helps them to keep the inflation rate at check because too much or too little money in the economy is dangerous. Hence they ensure that enough money is circulating in the economy.
  3. They also control interest rates in the countries according to how the economy is performing. This means hiking or lowering the interest rates accordingly.
  4. Central banks are also in charge of all the commercial banks in a country. Therefore part of their role is to look into their operations and ensure that the banks are operating according to the set regulations in the different countries.

Almost all countries have central banks as a result of the Brussels Financial conference that took place in the year 1920 where a resolution was passed that required all countries to establish a central bank for the interest of world cooperation.