A central bank is a financial institution that has exclusive control over the production and distribution of money and credit in a nation. It is responsible for formulating monetary policy and regulating member banks. Central banks are unique because they have a legal monopoly on issuing banknotes and cash, unlike private commercial banks that can only issue demand liabilities like checking deposits. Central banks play a crucial role in managing a country's economy by controlling the national money supply and setting interest rates. They raise interest rates to curb inflation and lower them to stimulate economic growth. This management of monetary policy helps achieve economic goals such as full employment and stable prices. Most central banks aim for an annual inflation target of 2-3%. In addition to monetary policy, central banks regulate member banks through various requirements and provide loans and services to banks and the government. They also act as emergency lenders to distressed institutions and sometimes the government. The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Philippines, established in 1993, and it focuses on maintaining price stability to ensure sustainable economic growth.
  • Articles
  • Understanding the Role of Central Banks
1 / 3

Understanding the Role of Central Banks

A central bank is a financial institution that has exclusive control over the production and distribution of money and credit in a nation. It is responsible for formulating monetary policy and regulating member banks. Central banks are unique because they have a legal monopoly on issuing banknotes and cash, unlike private commercial banks that can only issue demand liabilities like checking deposits.

Back
FAQAbout PeraWise
Privacy PolicyTerms of Service