Answer to Question #56209 in Finance for Ying

Question

What is the Central Bank?

Answer 1

A central bank is an institution that manages a state's currency, supply of money and different interest rates. In contrast to a commercial bank, a central bank has a monopoly on increasing the monetary base in the state (monopoly on printing national currency).
The primary function and purpose of a central bank is to control the state's money supply using such policies as:
- change of interest rates,
- setting the reserve requirement (the amount of deposit money, which the commercial bank should hold in central bank),
- lender of last resort to the banking sector in crisis times.
In the US, Federal Reserve System plays the role of the central bank.