HOME

TheInfoList



OR:

A central bank, reserve bank, or
monetary authority In finance and economics, a monetary authority is the entity that manages a country’s currency and money supply, often with the objective of controlling inflation, interest rates, real GDP or unemployment rate. With its monetary tools, a m ...
is an institution that manages the
currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general ...
and
monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for federal funds, very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money s ...
of a country or monetary union, and oversees their commercial banking system. In contrast to a
commercial bank A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit. It can also refer to a bank, or a division of a large bank, which deals with ...
, a central bank possesses a
monopoly A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...
on increasing the
monetary base In economics, the monetary base (also base money, money base, high-powered money, reserve money, outside money, central bank money or, in the UK, narrow money) in a country is the total amount of money created by the central bank. This include ...
. Most central banks also have supervisory and regulatory powers to ensure the stability of member institutions, to prevent
bank run A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...
s, and to discourage reckless or
fraud In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compen ...
ulent behavior by member banks. Central banks in most developed nations are institutionally independent from political interference. Still, limited control by the executive and legislative bodies exists.


Activities of central banks

Functions of a central bank usually include: * Monetary policy: by setting the official
interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, t ...
and controlling the
money supply In macroeconomics, the money supply (or money stock) refers to the total volume of currency held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circu ...
; *Financial stability: acting as a government's
banker A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Becaus ...
and as the bankers' bank (" lender of last resort"); * Reserve management: managing a country's foreign-exchange and
gold reserves A gold reserve is the gold held by a national central bank, intended mainly as a guarantee to redeem promises to pay depositors, note holders (e.g. paper money), or trading peers, during the eras of the gold standard, and also as a store of v ...
and government bonds; * Banking supervision: regulating and supervising the banking industry; *Payments system: managing or supervising means of payments and inter-banking clearing systems; *Coins and notes issuance; *Other functions of central banks may include economic research, statistical collection, supervision of deposit guarantee schemes, advice to government in financial policy.


Monetary policy

Central banks implement a country's chosen
monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for federal funds, very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money s ...
.


Currency issuance

At the most basic level, monetary policy involves establishing what form of currency the country may have, whether a
fiat currency Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was some ...
, gold-backed currency (disallowed for countries in the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
), currency board or a currency union. When a country has its own national currency, this involves the issue of some form of standardized currency, which is essentially a form of
promissory note A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the ''maker'' or ''issuer'') promises in writing to pay a determinate sum of ...
: "money" under certain circumstances. Historically, this was often a promise to exchange the money for precious metals in some fixed amount. Now, when many currencies are fiat money, the "promise to pay" consists of the promise to accept that currency to pay for taxes. A central bank may use another country's currency either directly in a currency union, or indirectly on a currency board. In the latter case, exemplified by the Bulgarian National Bank,
Hong Kong Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a List of cities in China, city and Special administrative regions of China, special ...
and
Latvia Latvia ( or ; lv, Latvija ; ltg, Latveja; liv, Leţmō), officially the Republic of Latvia ( lv, Latvijas Republika, links=no, ltg, Latvejas Republika, links=no, liv, Leţmō Vabāmō, links=no), is a country in the Baltic region of ...
(until 2014), the local currency is backed at a fixed rate by the central bank's holdings of a foreign currency. Similar to commercial banks, central banks hold assets (government bonds, foreign exchange, gold, and other financial assets) and incur liabilities (currency outstanding). Central banks create money by issuing banknotes and loaning them to the government in exchange for interest-bearing assets such as government bonds. When central banks decide to increase the money supply by an amount which is greater than the amount their national governments decide to borrow, the central banks may purchase private bonds or assets denominated in foreign currencies. The
European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centra ...
remits its interest income to the central banks of the member countries of the European Union. The US
Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
remits most of its profits to the U.S. Treasury. This income, derived from the power to issue currency, is referred to as seigniorage, and usually belongs to the national government. The state-sanctioned power to create currency is called the Right of Issuance. Throughout history, there have been disagreements over this power, since whoever controls the creation of currency controls the seigniorage income. The expression "monetary policy" may also refer more narrowly to the interest-rate targets and other active measures undertaken by the monetary authority.


Goals of central banks


Price stability

The primary role of central banks is usually to maintain price stability, as defined as a specific level of inflation.
Inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
is defined either as the devaluation of a currency or equivalently the rise of prices relative to a currency. Most central banks currently have an inflation target close to 2%. Since inflation lowers real wages, Keynesians view inflation as the solution to involuntary unemployment. However, "unanticipated" inflation leads to lender losses as the real interest rate will be lower than expected. Thus, Keynesian monetary policy aims for a steady rate of inflation. A publication from the
Austrian School The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian scho ...
, ''
The Case Against the Fed ''The Case Against the Fed'' is a 1994 book by Murray N. Rothbard criticising the United States Federal Reserve, fractional reserve banking, and central banks in general. It details a history of fractional reserve banking and the influence that ba ...
'', argues that the efforts of the central banks to control inflation have been counterproductive. Central banks as monetary authorities in representative states are intertwined through globalized financial markets. As a regulator of one of the most widespread currencies in the global economy, Federal Reserve (FED) plays a huge role in the international monetary market. Being the main supplier and rate adjusted for USD, FED implements a certain set of requirements to regulate inflation and unemployment in the US, willingly or unwillingly influencing the actions of Central Bank of Armenia (CBA). Armenia is a small country with a relatively weak economy and bears the consequences of FED policies the most.


High employment

Frictional unemployment Frictional unemployment is a form of unemployment reflecting the gap between someone voluntarily leaving a job and finding another. As such, it is sometimes called search unemployment, though it also includes gaps in employment when transferring ...
is the time period between jobs when a worker is searching for, or transitioning from one job to another. Unemployment beyond frictional unemployment is classified as unintended unemployment. For example,
structural unemployment Structural unemployment is a form of involuntary unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers (also known as the skills gap). Structural unemployment is ...
is a form of unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers seeking employment. Macroeconomic policy generally aims to reduce unintended unemployment. Keynes labeled any jobs that would be created by a rise in wage-goods (i.e., a decrease in real-wages) as
involuntary unemployment Involuntary unemployment occurs when a person is unemployed despite being willing to work at the prevailing wage. It is distinguished from voluntary unemployment, where a person refuses to work because their reservation wage is higher than the pr ...
: ::Men are involuntarily unemployed if, in the event of a small rise in the price of wage-goods relatively to the money-wage, both the aggregate supply of labour willing to work for the current money-wage and the aggregate demand for it at that wage would be greater than the existing volume of employment.—
John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
, '' The General Theory of Employment, Interest and Money'' p1


Economic growth

Economic growth can be enhanced by investment in
capital Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used fo ...
, such as more or better machinery. A low interest rate implies that firms can borrow money to invest in their capital stock and pay less interest for it. Lowering the interest is therefore considered to encourage economic growth and is often used to alleviate times of low economic growth. On the other hand, raising the interest rate is often used in times of high economic growth as a contra-cyclical device to keep the economy from overheating and avoid market bubbles. Further goals of monetary policy are stability of interest rates, of the financial market, and of the foreign exchange market. Goals frequently cannot be separated from each other and often conflict. Costs must therefore be carefully weighed before policy implementation.


= Climate change

= In the aftermath of the Paris agreement on climate change, a debate is now underway on whether central banks should also pursue environmental goals as part of their activities. In 2017, eight central banks formed the Network for Greening the Financial System (NGFS) to evaluate the way in which central banks can use their regulatory and monetary policy tools to support climate change mitigation. Today more than 70 central banks are part of the NGFS. In January 2020, the
European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centra ...
has announced it will consider climate considerations when reviewing its monetary policy framework.

Proponents of "green monetary policy" are proposing that central banks include climate-related criteria in their collateral eligibility frameworks, when conducting asset purchases and also in their refinancing operations. But critics such as Jens Weidmann are arguing it is not central banks' role to conduct climate policy. China is among the most advanced central banks when it comes to green monetary policy. It has given green bonds preferential status to lower their yield and uses window policy to direct green lending.


Monetary policy instruments

The primary tools available to central banks are
open market operation In macroeconomics, an open market operation (OMO) is an activity by a central bank to give (or take) liquidity in its currency to (or from) a bank or a group of banks. The central bank can either buy or sell government bonds (or other financial ...
s (including repurchase agreements), reserve requirements, interest rate policy (through control of the discount rate), and control of the
money supply In macroeconomics, the money supply (or money stock) refers to the total volume of currency held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circu ...
. A central bank affects the monetary base through open market operations, if its country has a well developed market for its government bonds. This entails managing the quantity of money in circulation through the buying and selling of various financial instruments, such as treasury bills, repurchase agreements or "repos", company bonds, or foreign currencies, in exchange for money on deposit at the central bank. Those deposits are convertible to currency, so all of these purchases or sales result in more or less base currency entering or leaving market circulation. For example, if the central bank wishes to decrease interest rates (executing expansionary monetary policy), it purchases government debt, thereby increasing the amount of cash in circulation or crediting banks' reserve accounts. Commercial banks then have more money to lend, so they reduce lending rates, making loans less expensive. Cheaper credit card interest rates increase consumer spending. Additionally, when business loans are more affordable, companies can expand to keep up with consumer demand. They ultimately hire more workers, whose incomes increase, which in its turn also increases the demand. This method is usually enough to stimulate demand and drive economic growth to a healthy rate. Usually, the short-term goal of open market operations is to achieve a specific short-term interest rate target. In other instances, monetary policy might instead entail the targeting of a specific exchange rate relative to some foreign currency or else relative to gold. For example, in the case of the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
the
Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
targets the federal funds rate, the rate at which member banks lend to one another overnight; however, the monetary policy of China (since 2014) is to target the exchange rate between the Chinese renminbi and a basket of foreign currencies. If the open market operations do not lead to the desired effects, a second tool can be used: the central bank can increase or decrease the interest rate it charges on discounts or overdrafts (loans from the central bank to commercial banks, see discount window). If the interest rate on such transactions is sufficiently low, commercial banks can borrow from the central bank to meet reserve requirements and use the additional liquidity to expand their balance sheets, increasing the credit available to the economy. A third alternative is to change the
reserve requirements Reserve requirements are central bank regulations that set the minimum amount that a commercial bank must hold in liquid assets. This minimum amount, commonly referred to as the commercial bank's reserve, is generally determined by the centra ...
. The reserve requirement refers to the proportion of total liabilities that banks must keep on hand overnight, either in its vaults or at the central bank. Banks only maintain a small portion of their assets as cash available for immediate withdrawal; the rest is invested in illiquid assets like mortgages and loans. Lowering the reserve requirement frees up funds for banks to increase loans or buy other profitable assets. This is expansionary because it creates credit. However, even though this tool immediately increases liquidity, central banks rarely change the reserve requirement because doing so frequently adds uncertainty to banks' planning. The use of open market operations is therefore preferred.


Unconventional monetary policy

Other forms of monetary policy, particularly used when interest rates are at or near 0% and there are concerns about deflation or deflation is occurring, are referred to as unconventional monetary policy. These include credit easing, quantitative easing, forward guidance, and signalling. In credit easing, a central bank purchases private sector assets to improve liquidity and improve access to credit. Signaling can be used to lower market expectations for lower interest rates in the future. For example, during the credit crisis of 2008, the
US Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after ...
indicated rates would be low for an "extended period", and the
Bank of Canada The Bank of Canada (BoC; french: Banque du Canada) is a Crown corporation and Canada's central bank. Chartered in 1934 under the ''Bank of Canada Act'', it is responsible for formulating Canada's monetary policy,OECD. OECD Economic Surveys: C ...
made a "conditional commitment" to keep rates at the lower bound of 25 basis points (0.25%) until the end of the second quarter of 2010. Some have envisaged the use of what Milton Friedman once called "
helicopter money Helicopter money is a proposed unconventional monetary policy, sometimes suggested as an alternative to quantitative easing (QE) when the economy is in a liquidity trap (when interest rates near zero and the economy remains in recession). Altho ...
" whereby the central bank would make direct transfers to citizens in order to lift inflation up to the central bank's intended target. Such policy option could be particularly effective at the zero lower bound.


Banking supervision and other activities

In some countries a central bank, through its subsidiaries, controls and monitors the banking sector. In other countries banking supervision is carried out by a government department such as the UK Treasury, or by an independent government agency, for example, UK's
Financial Conduct Authority The Financial Conduct Authority (FCA) is a financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The FCA regulates financ ...
. It examines the banks'
balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
s and behaviour and policies toward consumers. Apart from refinancing, it also provides banks with services such as transfer of funds, bank notes and coins or foreign currency. Thus it is often described as the "bank of banks". Many countries will monitor and control the banking sector through several different agencies and for different purposes. The
Bank regulation in the United States Bank regulation in the United States is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on the type of cha ...
for example is highly fragmented with 3 federal agencies, the
Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures cr ...
, the
Federal Reserve Board The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement the m ...
, or
Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all nat ...
and numerous others on the state and the private level. There is usually significant cooperation between the agencies. For example, money center banks, deposit-taking institutions, and other types of financial institutions may be subject to different (and occasionally overlapping) regulation. Some types of banking regulation may be delegated to other levels of government, such as state or provincial governments. Any cartel of banks is particularly closely watched and controlled. Most countries control bank mergers and are wary of concentration in this industry due to the danger of groupthink and runaway lending bubbles based on a
single point of failure A single point of failure (SPOF) is a part of a system that, if it fails, will stop the entire system from working. SPOFs are undesirable in any system with a goal of high availability or reliability, be it a business practice, software ap ...
, the credit culture of the few large banks.


Independence

Numerous governments have opted to make central banks independent. The economic logic behind central bank independence is that when governments delegate monetary policy to an independent central bank (with an anti-inflationary purpose) and away from elected politicians, monetary policy will not reflect the interests of the politicians. When governments control monetary policy, politicians may be tempted to boost economic activity in advance of an election to the detriment of the long-term health of the economy and the country. As a consequence, financial markets may not consider future commitments to low inflation to be credible when monetary policy is in the hands of elected officials, which increases the risk of capital flight. An alternative to central bank independence is to have fixed exchange rate regimes. Governments generally have some degree of influence over even "independent" central banks; the aim of independence is primarily to prevent short-term interference. In 1951, the
Deutsche Bundesbank The Deutsche Bundesbank (), literally "German Federal Bank", is the central bank of the Federal Republic of Germany and as such part of the European System of Central Banks (ESCB). Due to its strength and former size, the Bundesbank is the most ...
became the first central bank to be given full independence, leading this form of central bank to be referred to as the "Bundesbank model", as opposed, for instance, to the New Zealand model, which has a goal (i.e. inflation target) set by the government. Central bank independence is usually guaranteed by legislation and the institutional framework governing the bank's relationship with elected officials, particularly the minister of finance. Central bank legislation will enshrine specific procedures for selecting and appointing the head of the central bank. Often the minister of finance will appoint the governor in consultation with the central bank's board and its incumbent governor. In addition, the legislation will specify banks governor's term of appointment. The most independent central banks enjoy a fixed non-renewable term for the governor in order to eliminate pressure on the governor to please the government in the hope of being re-appointed for a second term. Generally, independent central banks enjoy both goal and instrument independence. Despite their independence, central banks are usually accountable at some level to government officials, either to the finance ministry or to parliament. For example, the Board of Governors of the U.S. Federal Reserve are nominated by the U.S. President and confirmed by the
Senate A senate is a deliberative assembly, often the upper house or chamber of a bicameral legislature. The name comes from the ancient Roman Senate (Latin: ''Senatus''), so-called as an assembly of the senior (Latin: ''senex'' meaning "the el ...
, publishes verbatim transcripts, and balance sheets are audited by the
Government Accountability Office The U.S. Government Accountability Office (GAO) is a legislative branch government agency that provides auditing, evaluative, and investigative services for the United States Congress. It is the supreme audit institution of the federal gover ...
. In the 1990s there was a trend towards increasing the independence of central banks as a way of improving long-term economic performance. While a large volume of economic research has been done to define the relationship between central bank independence and economic performance, the results are ambiguous. The literature on central bank independence has defined a cumulative and complementary number of aspects: * Institutional independence: The independence of the central bank is enshrined in law and shields central banks from political interference. In general terms, institutional independence means that politicians should refrain from seeking to influence monetary policy decisions, while symmetrically central banks should also avoid influencing government politics. * Goal independence: The central bank has the right to set its own policy goals, whether inflation targeting, control of the money supply, or maintaining a fixed exchange rate. While this type of independence is more common, many central banks prefer to announce their policy goals in partnership with the appropriate government departments. This increases the transparency of the policy-setting process and thereby increases the credibility of the goals chosen by providing assurance that they will not be changed without notice. In addition, the setting of common goals by the central bank and the government helps to avoid situations where monetary and fiscal policy are in conflict; a policy combination that is clearly sub-optimal. * Functional & operational independence: The central bank has the independence to determine the best way of achieving its policy goals, including the types of instruments used and the timing of their use. To achieve its mandate, the central bank has the authority to run its own operations (appointing staff, setting budgets, and so on.) and to organize its internal structures without excessive involvement of the government. This is the most common form of central bank independence. The granting of independence to the Bank of England in 1997 was, in fact, the granting of operational independence; the inflation target continued to be announced in the Chancellor's annual budget speech to Parliament. * Personal independence: The other forms of independence are not possible unless central bank heads have a high
security of tenure Security of tenure is a term used in political science to describe a constitutional or legal guarantee that a political office-holder cannot be removed from office except in exceptional and specified circumstances. Without security of tenure, an ...
. In practice, this means that governors should hold long mandates (at least longer than the electoral cycle) and a certain degree of legal immunity. One of the most common statistical indicators used in the literature as a proxy for central bank independence is the "turn-over-rate" of central bank governors. If a government is in the habit of appointing and replacing the governor frequently, it clearly has the capacity to micro-manage the central bank through its choice of governors. * Financial independence: central banks have full autonomy on their budget, and some are even prohibited from financing governments. This is meant to remove incentives from politicians to influence central banks. * Legal independence : some central banks have their own legal personality, which allows them to ratify international agreements without the government's approval (like the ECB), and to go to court. There is very strong consensus among economists that an independent central bank can run a more credible monetary policy, making market expectations more responsive to signals from the central bank. Both the Bank of England (1997) and the European Central Bank have been made independent and follow a set of published inflation targets so that markets know what to expect. Even the People's Bank of China has been accorded great latitude, though in
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
the official role of the bank remains that of a national bank rather than a central bank, underlined by the official refusal to "unpeg" the yuan or to revalue it "under pressure". The fact that the Communist Party is not elected also relieves the pressure to please people, increasing its independence. International organizations such as the
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
, the Bank for International Settlements (BIS) and the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(IMF) strongly support central bank independence. This results, in part, from a belief in the intrinsic merits of increased independence. The support for independence from the international organizations also derives partly from the connection between increased independence for the central bank and increased transparency in the policy-making process. The IMF's
Financial Services Action Plan The Financial Services Action Plan (FSAP) is a key component of the European Union's attempt to create a single market for financial services. Created in 1999 and to last for a period of six years, it contained 42 articles related to the harmoni ...
(FSAP) review self-assessment, for example, includes a number of questions about central bank independence in the transparency section. An independent central bank will score higher in the review than one that is not independent. Central bank independence indices allow a quantitative analysis of central bank independence for individual countries over time. One central bank independence index is the Garriga CBI.


History


Early history

The use of
money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money ar ...
as a unit of account predates history. Government control of money is documented in the ancient Egyptian economy (2750–2150 BCE). The Egyptians measured the value of goods with a central unit called ''shat''. Like many other currencies, the shat was linked to
gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile ...
. The value of a shat in terms of goods was defined by government administrations. Other cultures in
Asia Minor Anatolia, tr, Anadolu Yarımadası), and the Anatolian plateau, also known as Asia Minor, is a large peninsula in Western Asia and the westernmost protrusion of the Asian continent. It constitutes the major part of modern-day Turkey. The re ...
later materialized their currencies in the form of gold and silver
coin A coin is a small, flat (usually depending on the country or value), round piece of metal or plastic used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order ...
s. In the
medieval In the history of Europe, the Middle Ages or medieval period lasted approximately from the late 5th to the late 15th centuries, similar to the post-classical period of global history. It began with the fall of the Western Roman Empire a ...
and the early modern period a network of professional
bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
s was established in
Southern Southern may refer to: Businesses * China Southern Airlines, airline based in Guangzhou, China * Southern Airways, defunct US airline * Southern Air, air cargo transportation company based in Norwalk, Connecticut, US * Southern Airways Express, M ...
and
Central Europe Central Europe is an area of Europe between Western Europe and Eastern Europe, based on a common historical, social and cultural identity. The Thirty Years' War (1618–1648) between Catholicism and Protestantism significantly shaped the a ...
. The institutes built a new tier in the financial economy. The monetary system was still controlled by government institutions, mainly through the coinage prerogative. Banks, however, could use book money to create deposits for their customers. Thus, they had the possibility to issue, lend and transfer money autonomously without direct governmental control. In order to consolidate the monetary system, a network of public exchange banks was established at the beginning of the 17th century in main European trade centres. The Amsterdam Wisselbank was founded as a first institute in 1609. Further exchange banks were located in
Hamburg Hamburg (, ; nds, label=Hamburg German, Low Saxon, Hamborg ), officially the Free and Hanseatic City of Hamburg (german: Freie und Hansestadt Hamburg; nds, label=Low Saxon, Friee un Hansestadt Hamborg),. is the List of cities in Germany by popul ...
,
Venice Venice ( ; it, Venezia ; vec, Venesia or ) is a city in northeastern Italy and the capital of the Veneto Regions of Italy, region. It is built on a group of 118 small islands that are separated by canals and linked by over 400  ...
and
Nuremberg Nuremberg ( ; german: link=no, Nürnberg ; in the local East Franconian dialect: ''Nämberch'' ) is the second-largest city of the German state of Bavaria after its capital Munich, and its 518,370 (2019) inhabitants make it the 14th-largest ...
. The institutes offered a public infrastructure for cashless international payments. They aimed to increase the efficiency of international trade and to safeguard monetary stability. The exchange banks thus fulfilled comparable functions to modern central banks. The institutes even issued their own (book) currency, called ''Mark Banco''. The Bank of Amsterdam established in 1609 is considered to be the precursor to modern central banks. The central bank of Sweden (" Sveriges Riksbank" or simply "Riksbanken") was founded in Stockholm from the remains of the failed bank Stockholms Banco in 1664 and answered to the parliament (" Riksdag of the Estates"). One role of the Swedish central bank was lending money to the government.


Bank of England

The establishment of the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government o ...
, the model on which most modern central banks have been based, was devised by Charles Montagu, 1st Earl of Halifax, in 1694, following a proposal by the banker William Paterson three years earlier, which had not been acted upon. In the
Kingdom of England The Kingdom of England (, ) was a sovereign state on the island of Great Britain from 12 July 927, when it emerged from various Anglo-Saxon kingdoms, until 1 May 1707, when it united with Scotland to form the Kingdom of Great Britain. On ...
in the 1690s, public funds were in short supply, and the credit of William III's government was so low in London that it was impossible for it to borrow the £1,200,000 (at 8 percent) needed to finance the ongoing
Nine Years' War The Nine Years' War (1688–1697), often called the War of the Grand Alliance or the War of the League of Augsburg, was a conflict between Kingdom of France, France and a European coalition which mainly included the Holy Roman Empire (led by t ...
with France. In order to induce subscription to the loan, Montagu proposed that the subscribers were to be incorporated as ''The Governor and Company of the Bank of England'' with long-term banking privileges including the issue of notes. The lenders would give the government cash (bullion) and also issue notes against the government bonds, which could be lent again. A
royal charter A royal charter is a formal grant issued by a monarch under royal prerogative as letters patent. Historically, they have been used to promulgate public laws, the most famous example being the English Magna Carta (great charter) of 1215, b ...
was granted on 27 July through the passage of the
Tonnage Act 1694 The Bank of England Act 1694 (5 & 6 Will & Mar c 20), sometimes referred to as the Tonnage Act 1694, is an Act of the Parliament of England. It is one of the Bank of England Acts 1694 to 1892.The Short Titles Act 1896, section 2(1) and Schedule ...
. The bank was given exclusive possession of the government's balances, and was the only limited-liability corporation allowed to issue
banknote A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes w ...
s. The £1.2 million was raised in 12 days; half of this was used to rebuild the navy. Although this establishment of the Bank of England marks the origin of central banking, it did not have the functions of a modern central bank, namely, to regulate the value of the national currency, to finance the government, to be the sole authorized distributor of banknotes, and to function as a 'lender of last resort' to banks suffering a liquidity crisis. These modern central banking functions evolved slowly through the 18th and 19th centuries. Although the bank was originally a private institution, by the end of the 18th century it was increasingly being regarded as a public authority with civic responsibility toward the upkeep of a healthy financial system. The currency crisis of 1797, caused by panicked depositors withdrawing from the bank led to the government suspending convertibility of notes into specie payment. The bank was soon accused by the bullionists of causing the
exchange rate In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of t ...
to fall from over issuing banknotes, a charge which the bank denied. Nevertheless, it was clear that the bank was being treated as an organ of the state. Henry Thornton, a
merchant bank A merchant bank is historically a bank dealing in commercial loans and investment. In modern British usage it is the same as an investment bank. Merchant banks were the first modern banks and evolved from medieval merchants who traded in commodi ...
er and monetary theorist has been described as the father of the modern central bank. An opponent of the real bills doctrine, he was a defender of the bullionist position and a significant figure in monetary theory. Thornton's process of monetary expansion anticipated the theories of
Knut Wicksell Johan Gustaf Knut Wicksell (December 20, 1851 – May 3, 1926) was a leading Swedish economist of the Stockholm school. His economic contributions would influence both the Keynesian and Austrian schools of economic thought. He was married to t ...
regarding the "cumulative process which restates the Quantity Theory in a theoretically coherent form". As a response to the 1797 currency crisis, Thornton wrote in 1802 '' An Enquiry into the Nature and Effects of the Paper Credit of Great Britain'', in which he argued that the increase in paper credit did not cause the crisis. The book also gives a detailed account of the British monetary system as well as a detailed examination of the ways in which the Bank of England should act to counteract fluctuations in the value of the pound. Until the mid-nineteenth century, commercial banks were able to issue their own banknotes, and notes issued by provincial banking companies were commonly in circulation. Many consider the origins of the central bank to lie with the passage of the
Bank Charter Act 1844 The Bank Charter Act 1844 (7 & 8 Vict. c. 32), sometimes referred to as the Peel Banking Act of 1844, was an Act of the Parliament of the United Kingdom, passed under the government of Robert Peel, which restricted the powers of British banks ...
. Under the 1844 Act, bullionism was institutionalized in Britain, creating a ratio between the gold reserves held by the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government o ...
and the notes that the bank could issue. Mary Poovey, ''Genres of the Credit Economy: Mediating Value in Eighteenth- and Nineteenth-Century Britain'' (University of Chicago Press, 2008), p. 49. The Act also placed strict curbs on the issuance of notes by the country banks. The bank accepted the role of 'lender of last resort' in the 1870s after criticism of its lacklustre response to the Overend-Gurney crisis. The journalist
Walter Bagehot Walter Bagehot ( ; 3 February 1826 – 24 March 1877) was an English journalist, businessman, and essayist, who wrote extensively about government, economics, literature and race. He is known for co-founding the '' National Review'' in 185 ...
wrote on the subject in '' Lombard Street: A Description of the Money Market'', in which he advocated for the bank to officially become a lender of last resort during a
credit crunch A credit crunch (also known as a credit squeeze, credit tightening or credit crisis) is a sudden reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from banks. A credit cr ...
, sometimes referred to as "Bagehot's dictum". Paul Tucker phrased the dictum in 2009 as follows:


Spread around the world

Central banks were established in many European countries during the 19th century. Napoleon created the
Banque de France The Bank of France (French: ''Banque de France''), headquartered in Paris, is the central bank of France. Founded in 1800, it began as a private institution for managing state debts and issuing notes. It is responsible for the accounts of the ...
in 1800, in an attempt to improve the financing of his wars. On the continent of Europe, the Bank of France remained the most important central bank throughout the 19th century. The
Bank of Finland The Bank of Finland ( fi, Suomen Pankki, sv, Finlands Bank) is the central bank of Finland. It views itself as the fourth oldest surviving central bank in the world, after Sweden's Riksbank, the Bank of England, and the Bank of France. History ...
was founded in 1812, soon after Finland had been taken over from Sweden by Russia to become its grand duchy. A central banking role was played by a small group of powerful family banking houses, typified by the
House of Rothschild The Rothschild family ( , ) is a wealthy Ashkenazi Jewish family originally from Frankfurt that rose to prominence with Mayer Amschel Rothschild (1744–1812), a court factor to the German Landgraves of Hesse-Kassel in the Free City of Fra ...
, with branches in major cities across Europe, as well as the Hottinguer family in Switzerland and the
Oppenheim family The Oppenheim family is a German Jewish banking family which founded what was Europe's biggest private bank, Sal. Oppenheim. According to Manager Magazin 2008, the Oppenheim family was among the 30 richest families in Germany, with assets over 8 b ...
in Germany. Although central banks today are generally associated with fiat money, the 19th and early 20th centuries central banks in most of Europe and
Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the n ...
developed under the international
gold standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from th ...
. Free banking or currency boards were common at this time. Problems with collapses of banks during downturns, however, led to wider support for central banks in those nations which did not as yet possess them, most notably in Australia. Australia established its first central bank in 1920, Peru in 1922,
Colombia Colombia (, ; ), officially the Republic of Colombia, is a country in South America with insular regions in North America—near Nicaragua's Caribbean coast—as well as in the Pacific Ocean. The Colombian mainland is bordered by the ...
in 1923,
Mexico Mexico (Spanish language, Spanish: México), officially the United Mexican States, is a List of sovereign states, country in the southern portion of North America. It is borders of Mexico, bordered to the north by the United States; to the so ...
and
Chile Chile, officially the Republic of Chile, is a country in the western part of South America. It is the southernmost country in the world, and the closest to Antarctica, occupying a long and narrow strip of land between the Andes to the eas ...
in 1925 and
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by to ...
,
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
and
New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island coun ...
in the aftermath of the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
in 1934. By 1935, the only significant independent nation that did not possess a central bank was
Brazil Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
, which subsequently developed a precursor thereto in 1945 and the present Central Bank of Brazil twenty years later. After gaining independence, African and Asian countries also established central banks or monetary unions. The Reserve Bank of India, which had been established during British colonial rule as a private company, was nationalized in 1949 following India's independence. The Central Bank of Armenia was founded on April 27, 1993 and the National Bank of Armenia was renamed into the Central Bank of the Republic of Armenia. It was under the governorship of Isahak Isahakyan who was governing the State Bank since 1986. The People's Bank of China evolved its role as a central bank starting in about 1979 with the introduction of market reforms, which accelerated in 1989 when the country adopted a generally capitalist approach to its export economy. Evolving further partly in response to the
European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centra ...
, the People's Bank of China had by 2000 become a modern central bank. The most recent bank model was introduced together with the
euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
, and involves coordination of the European national banks, which continue to manage their respective economies separately in all respects other than currency exchange and base interest rates.


United States

Alexander Hamilton Alexander Hamilton (January 11, 1755 or 1757July 12, 1804) was an American military officer, statesman, and Founding Father who served as the first United States secretary of the treasury from 1789 to 1795. Born out of wedlock in Charle ...
as Secretary of the Treasury in the 1790s strongly promoted the banking system, and over heavy opposition from Jeffersonian Republicans, set up the
First Bank of the United States First or 1st is the ordinal form of the number one (#1). First or 1st may also refer to: *World record, specifically the first instance of a particular achievement Arts and media Music * 1$T, American rapper, singer-songwriter, DJ, and rec ...
. Jeffersonians allowed it to lapse, but the overwhelming financial difficulties of funding the War of 1812 without a central bank changed their minds. The Second Bank of the United States (1816–1836) under Nicholas Biddle functioned as a central bank, regulating the rapidly growing banking system. The role of a central bank was ended in the Bank War of the 1830s by President
Andrew Jackson Andrew Jackson (March 15, 1767 – June 8, 1845) was an American lawyer, planter, general, and statesman who served as the seventh president of the United States from 1829 to 1837. Before being elected to the presidency, he gained fame as ...
when he shut down the Second Bank as being too powerful and elitist. In 1913 the United States created the
Federal Reserve System The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after ...
through the passing of
The Federal Reserve Act The Federal Reserve Act was passed by the 63rd United States Congress and signed into law by President Woodrow Wilson on December 23, 1913. The law created the Federal Reserve System, the central banking system of the United States. The Panic ...
.


21st century

After the
financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of ...
central banks led change, but as of 2015 their ability to boost economic growth has stalled. Central banks debate whether they should experiment with new measures like negative interest rates or direct financing of government, "lean even more on politicians to do more".
Andy Haldane Andrew G. Haldane, (; born 18 August 1967) is a British economist who worked at the Bank of England between 1989 and 2021 as the chief economist and executive director of monetary analysis and statistics. He resigned from the Bank of England i ...
from the Bank of England said "central bankers may need to accept that their good old days – of adjusting interest rates to boost employment or contain inflation – may be gone for good". The
European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centra ...
and the
Bank of Japan The is the central bank of Japan. Nussbaum, Louis Frédéric. (2005). "Nihon Ginkō" in The bank is often called for short. It has its headquarters in Chūō, Tokyo. History Like most modern Japanese institutions, the Bank of Japan was foun ...
whose economies are in or close to deflation, continue quantitative easing – buying securities to encourage more lending. Since 2017, prospect of implementing
Central Bank Digital Currency A central bank digital currency (CBDC) (also called digital fiat currency or digital base money) is a digital currency issued by a central bank, rather than by a commercial bank. A report by the Bank for International Settlements states that, ...
(CBDC) has been in discussion. As of the end of 2018, at least 15 central banks were considering to implementing CBDC. Since 2014, the People's Bank of China has been working on a project for digital currency to make its own digital currency and electronic payment systems.


Naming of central banks

There is no standard terminology for the name of a central bank, but many countries use the "Bank of ountry form—for example:
Bank of Canada The Bank of Canada (BoC; french: Banque du Canada) is a Crown corporation and Canada's central bank. Chartered in 1934 under the ''Bank of Canada Act'', it is responsible for formulating Canada's monetary policy,OECD. OECD Economic Surveys: C ...
, Bank of Mexico,
Bank of Thailand The Bank of Thailand (BOT) ( Abrv: ธปท.; th, ธนาคารแห่งประเทศไทย, ) is the central bank of Thailand. History The Bank of Thailand (BOT) was first set up as the Thai National Banking Bureau. The Bank ...
. The
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
does not follow this form as its central bank is the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government o ...
(which, despite its name, is the central bank of the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
as a whole). The name's lack of representation of the entire United Kingdom ('Bank of Britain', for example) can be owed to the fact that its establishment occurred when the Kingdoms of
England England is a country that is part of the United Kingdom. It shares land borders with Wales to its west and Scotland to its north. The Irish Sea lies northwest and the Celtic Sea to the southwest. It is separated from continental Europe ...
,
Scotland Scotland (, ) is a country that is part of the United Kingdom. Covering the northern third of the island of Great Britain, mainland Scotland has a border with England to the southeast and is otherwise surrounded by the Atlantic Ocean to ...
and
Ireland Ireland ( ; ga, Éire ; Ulster-Scots: ) is an island in the North Atlantic Ocean, in north-western Europe. It is separated from Great Britain to its east by the North Channel, the Irish Sea, and St George's Channel. Ireland is the s ...
were separate entities (at least in name), and therefore pre-dates the merger of the Kingdoms of England and Scotland, the Kingdom of Ireland's absorption into the Union and the formation of the present day
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
. The word "Reserve" is also often included, such as the
Reserve Bank of India The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible f ...
, Reserve Bank of Australia,
Reserve Bank of New Zealand The Reserve Bank of New Zealand (RBNZ, mi, Te Pūtea Matua) is the central bank of New Zealand. It was established in 1934 and is constituted under the Reserve Bank of New Zealand Act 1989. The governor of the Reserve Bank is responsible for ...
, the
South African Reserve Bank The South African Reserve Bank (SARB) is the central bank of South Africa. It was established in 1921 after Parliament passed an act, the "Currency and Bank Act of 10 August 1920", as a direct result of the abnormal monetary and financial condi ...
, and
Federal Reserve System The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after ...
(the U.S. central bank). Other central banks are known as monetary authorities such as the
Saudi Arabian Monetary Authority The Saudi Central Bank ( ar, البنك المركزي السعودي), previously known as the Saudi Arabian Monetary Authority (SAMA; ar, link=no, مؤسسة النقد العربي السعودي), established in 1952, is the central bank of ...
,
Hong Kong Monetary Authority The Hong Kong Monetary Authority (HKMA) is Hong Kong's central banking institution. It is a government authority founded on 1 April 1993 when the Office of the Exchange Fund and the Office of the Commissioner of Banking merged. The organisati ...
, Monetary Authority of Singapore, Maldives Monetary Authority and Cayman Islands Monetary Authority. There is an instance where native language was used to name the central bank: in the Philippines the Filipino name Bangko Sentral ng Pilipinas is used even in English. Some are styled "national" banks, such as the Swiss National Bank, National Bank of Poland and National Bank of Ukraine, although the term national bank is also used for private commercial banks in some countries such as
National Bank of Pakistan National Bank of Pakistan (NBP) () is a Pakistani government-owned multinational commercial bank which is a subsidiary of State Bank of Pakistan. It is headquartered in Karachi, Pakistan. As of September 2020, it has 1,511 branches across Paki ...
. In other cases, central banks may incorporate the word "Central" (for example,
European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centra ...
,
Central Bank of Ireland The Central Bank of Ireland ( ga, Banc Ceannais na hÉireann) is Ireland's central bank, and as such part of the European System of Central Banks (ESCB). It is the country's financial services regulator for most categories of financial firms ...
, Central Bank of Brazil, Central Bank of Paraguay). In some countries, particularly in formerly Communist ones, the term national bank may be used to indicate both the monetary authority and the leading banking entity, such as the
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen nationa ...
's
Gosbank Gosbank (russian: Госбанк, Государственный банк СССР, ''Gosudarstvenny bank SSSR''—the State Bank of the USSR) was the central bank of the Soviet Union and the only bank in the entire country from 1922 to 1991 ...
(state bank). In rare cases, central banks are styled "state" banks such as the State Bank of Pakistan and State Bank of Vietnam. Many countries have state-owned banks or other quasi-government entities that have entirely separate functions, such as financing imports and exports. In other countries, the term national bank may be used to indicate that the central bank's goals are broader than monetary stability, such as full employment, industrial development, or other goals. Some commercial banks have names suggestive of central banks, even if they are not: examples are the
State Bank of India State Bank of India (SBI) is an Indian multinational public sector bank and financial services statutory body headquartered in Mumbai, Maharashtra. SBI is the 49th largest bank in the world by total assets and ranked 221st in the '' Fort ...
and Central Bank of India, National Bank of Greece, Banco do Brasil,
Bank of China The Bank of China (BOC; ) is a Chinese majority state-owned commercial bank headquartered in Beijing and the fourth largest bank in the world. The Bank of China was founded in 1912 by the Republican government as China's central bank, rep ...
,
Bank of Cyprus The Bank of Cyprus (BoC) ( el, Τράπεζα Κύπρου, tr, Kıbrıs Bankası) is a Cypriot financial services company established in 1899 with its headquarters in Strovolos. Current operations The Bank of Cyprus currently operates 108 bra ...
, or
Bank of Ireland Bank of Ireland Group plc ( ga, Banc na hÉireann) is a commercial bank operation in Ireland and one of the traditional Big Four Irish banks. Historically the premier banking organisation in Ireland, the Bank occupies a unique position in Iris ...
, as well as
Deutsche Bank Deutsche Bank AG (), sometimes referred to simply as Deutsche, is a German multinational investment bank and financial services company headquartered in Frankfurt, Germany, and dual-listed on the Frankfurt Stock Exchange and the New York St ...
. The chief executive of a central bank is usually known as the Governor, President or Chair.


Statistics

Collectively, central banks purchase less than 500 tonnes of
gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile ...
each year, on average (out of an annual global production of 2,500-3,000 tonnes). In 2018, central banks collectively hold over 33,000 metric tons of the gold, about a fifth of all the gold ever mined, according to Bloomberg News. In 2016, 75% of the world's central-bank assets were controlled by four centers in
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
, the United States, Japan and the
eurozone The euro area, commonly called eurozone (EZ), is a currency union of 19 member states of the European Union (EU) that have adopted the euro (€) as their primary currency and sole legal tender, and have thus fully implemented EMU pol ...
. The central banks of
Brazil Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
,
Switzerland ). Swiss law does not designate a ''capital'' as such, but the federal parliament and government are installed in Bern, while other federal institutions, such as the federal courts, are in other cities (Bellinzona, Lausanne, Luzern, Neuchâtel ...
,
Saudi Arabia Saudi Arabia, officially the Kingdom of Saudi Arabia (KSA), is a country in Western Asia. It covers the bulk of the Arabian Peninsula, and has a land area of about , making it the fifth-largest country in Asia, the second-largest in the Ara ...
, the
U.K The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and No ...
.,
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
and
Russia Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-ei ...
, each account for an average of 2.5 percent. The remaining 107 central banks hold less than 13 percent. According to data compiled by
Bloomberg News Bloomberg News (originally Bloomberg Business News) is an international news agency headquartered in New York City and a division of Bloomberg L.P. Content produced by Bloomberg News is disseminated through Bloomberg Terminals, Bloomberg T ...
, the top 10 largest central banks owned $21.4 trillion in assets, a 10 percent increase from 2015.Big Central Bank Assets Jump Fastest in 5 Years to $21 Trillion
Bloomberg News, 16 October 2016


See also

* List of central banks * History of central banking in the United States *
Fractional-reserve banking Fractional-reserve banking is the system of banking operating in almost all countries worldwide, under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserv ...
* Free banking * Full-reserve banking *
Monetary authority In finance and economics, a monetary authority is the entity that manages a country’s currency and money supply, often with the objective of controlling inflation, interest rates, real GDP or unemployment rate. With its monetary tools, a m ...


References


Further reading

* Acocella, N., Di Bartolomeo, G., and Hughes Hallett, A.
012 012 may refer to: * Tyrrell 012, a Formula One racing car * The dialing code for Pretoria, South Africa See also * 12 (disambiguation) Twelve or 12 may refer to: * 12 (number) * December, the twelfth and final month of the year Years * 12 BC ...
"Central banks and economic policy after the crisis: what have we learned?", ch. 5 in: Baker, H. K. and Riddick, L. A. (eds.), ''Survey of International Finance'', Oxford University Press.


External links


List of central bank websites at the Bank for International Settlements

''International Journal of Central Banking''


– A publication of the U.S.
Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
, describing its role in the macroeconomy *   – C E V Borio, Bank for International Settlements, Basel {{Authority control Banks Banking terms