Sunday, October 6, 2013


The primary function of a central bank is to manage the nation's money supply (货币政策), through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis. 中央銀行 usually also have supervisory powers, intended to prevent bank runs and to reduce the risk that commercial banks and other financial institutions engage in reckless or fraudulent behavior. Zentralbanken in most developed nations are institutionally designed to be independent from political interference. In most cases they are not public, in the sense that they are neither state-owned nor directly regulated by government, parliament or another elected body. Still, limited control by the executive and legislative bodies usually exists

The most important function of a central bank is to control the volume of credit for bringing about stability in the general price level and accomplishing various other socio economic objectives. The significance of this function has increased so much that for property understanding it. La banque centrale has acquired the rights and powers of controlling the entire banking. центральный банк can adopt various quantitative and qualitative methods for credit control such as bank rate, open market operation, changes in reserve ratio selective controls, moral situation.

A central bank also includes managing a country's reserves as one of it's responsibilities, essentially holding different currencies in its coffers to act as a buffer incase of currency fluctuation.
El banco central also acts as a lender of last resort to the government, this means the central bank has the capacity to provide financial assistance to the government in times of difficulty. This is a role that almost all Central Bank's fulfill, med en bemerkelsesverdig unntak er den europeiske sentralbanken.
Some central bank's also act as an overseer of financial market infrastructure, often having a hand in overseeing private companies that may have significant impact on a country's economy, such as a stock exchange. @#$@$%$$$

Macroeconomic Influences of a Central Bank

As it is responsible for price stability, the central bank must regulate the level of inflation by controlling money supplies by means of monetary policy. The central bank performs open market transactions that either inject the market with liquidity or absorb extra funds, directly affecting the level of inflation. To increase the amount of money in circulation and decrease the interest rate (cost) for borrowing, the central bank can buy government bonds, bills, or other government-issued notes. This buying can, however, also lead to higher inflation. When it needs to absorb money to reduce inflation, the central bank will sell government bonds on the open market, which increases the interest rate and discourages borrowing. Open market operations are the key means by which a central bank controls inflation, money supply, and price stability.

Microeconomic Influences of a Central Bank

The establishment of central banks as lender of last resort has pushed the need for their freedom from commercial banking. A commercial bank offers funds to clients on a first come, first serve basis. If the commercial bank does not have enough liquidity to meet its clients' demands (commercial banks typically do not hold reserves equal to the needs of the entire market), the commercial bank can turn to the central bank to borrow additional funds. This provides the system with stability in an objective way; central banks cannot favor any particular commercial bank. As such, many central banks will hold commercial-bank reserves that are based on a ratio of each commercial bank's deposits. Thus, a central bank may require all commercial banks to keep, for example, a 1:10 reserve/deposit ratio. Enforcing a policy of commercial bank reserves functions as another means to control money supply in the market. Not all central banks, however, require commercial banks to deposit reserves. The United Kingdom, for example, does not have this policy while the United States does. $#%^&*$$$

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