Must Know Facts About Central Bank

Some version of central banking has been around since the 28th century, BC. The term central bank, also sometimes called reserve bank or monetary authority, refers to a government institution that controls and/or oversees the territories currency, money supply, and interest rates. The earliest known government control of these things was in ancient Egypt, but nearly every major financial hub in the world has taken on some form of central banking.

 

In addition to  Things to know about central bank, the general control of currency, supply, and interest rates, a central bank also typically monitors all of the commercial banking activity within its state or territory. Working independently, or alongside the government, the central bank will create policies and sometimes provide insurance for the commercial banking industry, helping to create faith in the system and monetary stability.

While aligned with the government in most cases, the central bank remains a bipartisan bystander in all things political. The bank does not hold one parties side, nor does it have a certain favor in which party wins control of the nation, territory, or state that the central bank resides.

The naming of central banks is typically obvious and relative to where the bank is located and where it maintains control. The standard naming convention typically follows the same pattern, in which the blank is filled in with the state, i.e. The Bank of England. Other naming conventions have adopted different terms for their banks, such as reserve or national, i.e. The Federal Reserve or The Swiss National Bank.

While monetary policy is something typically decided by some form of legislative body, it is the responsibility of central banks to enforce said monetary policy. Changing how money is valued, in regards to the state’s gold reserves, or how much money is printed, is entirely the responsibility of the central bank and it is always trying to keep the country’s best interest in mind when doing so. A diminishment of value for the country is a direct reflection on the value of the job the central bank is doing, and therefore that reflection is seen as an important thing to maintain across the board for all central banks.

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In regards to stabilization, the insurance most central banks offer the commercial banking industry, help create good faith in the storing and savings of individual’s monies. After the great depression, in which there was a “run on the banks” of people trying to withdraw all of their money, the banks ran out and were unable to reimburse people with their cash. The central bank created an insurance for this so that commercial banking customers would never have to worry about being able to retrieve their money, should everything go south.

The central bank is a necessary and important part of any large financial system within a state. The decisions made impact everything from the cost of a gallon of milk to the cost of a house, and those decisions are made by the most knowledgeable professionals in the land, with the value of currency being their front of mind concern.

Post Author: Scott

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