A central bank, reserve bank, or monetary authority is a public institution that manages a state's currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the nation's monetary base, and usually also prints the national currency, which usually serves as the nation's legal tender. Examples include the European Central Bank (ECB), the Federal Reserve of the United States, and the People's Bank of China.
The primary function of a central bank is to manage the nation's money supply (monetary policy), 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. Central banks 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. Central banks in most developed nations are institutionally designed to be independent from political interference.
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Famous quotes containing the words bank and/or central:
“I know a bank where the wild thyme blows,
Where oxlips and the nodding violet grows,
Quite overcanopied with luscious woodbine,
With sweet musk-roses, and with eglantine:
There sleeps Titania sometime of the night,
Lulled in these flowers with dances and delight.”
—William Shakespeare (15641616)
“The best laws cannot make a constitution work in spite of morals; morals can turn the worst laws to advantage. That is a commonplace truth, but one to which my studies are always bringing me back. It is the central point in my conception. I see it at the end of all my reflections.”
—Alexis de Tocqueville (18051859)