What is Central Bank?

A central bank is a financial institution with privileged control over the creation and distribution of a currency in a state of an economic union of several nations. It is responsible for managing the monetary policies and regulations of the state and member banking institutions.

The primary duties of a central bank are to oversee the state's monetary system, regulate the distribution of the currency and the overall money supply, and determine the interest rates.

Central banks determine credit availability as they have the power to regulate the money supply of a state by either increasing or reducing it. The control is executed by issuing fiat currency and determining the interest rates on loans or bonds, which affects the financial growth, customer spending, and activity in the various industries.

The decisions made by the central bank have a direct impact on a national economy and are expected to follow certain goals set for its further development. Furthermore, central banks hold foreign exchange reserves. In case of a financial crisis, the central bank may provide loans for other financial institutions or the government.

Central banks maintain capital and reserve requirements and required policies which regulate the work of member banks.