sivapillarisetty.com Weekly Newsletter - 2/20/2024 - Central Bank Explained.

sivapillarisetty.com Weekly Newsletter - 2/20/2024 - Central Bank Explained.

A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base. Many central banks also have supervisory or regulatory powers to ensure the stability of commercial banks in their jurisdiction, to prevent bank runs, and in some cases also to enforce policies on financial consumer protection and against bank fraud, money laundering, or terrorism financing.

Central banks in most developed nations are usually set up to be institutionally independent from political interference, even though governments typically have governance rights over them, legislative bodies exercise scrutiny, and central banks frequently do show responsiveness to politics.

Issues like central bank independence, central bank policies and rhetoric in central bank governors' discourse or the premises of macroeconomic policies (monetary and fiscal policy) of the state are a focus of contention and criticism by some policymakers, researchers and specialized business, economics and finance media.

Definition

Walter Bagehot, influential 19th-century theorist of the economic role of central banks. The notion of central banks as a separate category from other banks has emerged gradually, and only fully coalesced in the 20th century. In the aftermath of World War I, leading central bankers of the United Kingdom and the United States respectively, Montagu Norman and Benjamin Strong, agreed on a definition of central banks that was both positive and normative.[13]:?4-5? Since that time, central banks have been generally distinguishable from other financial institutions, except in so-called single-tier communist systems such as Hungary's between 1950 and 1987, where the Hungarian National Bank operated alongside three other major state-owned banks.[14] For earlier periods, what institutions do or do not count as central banks is often not univocal. Correlatively, different scholars have held different views about the timeline of emergence of the first central banks. A widely held view in the second half of the 20th century has been that Stockholms Banco (est. 1657), as the original issuer of banknotes, counted as the oldest central bank, and that consequently its successor the Sveriges Riksbank was the oldest central bank in continuous operation, with the Bank of England as second oldest and direct or indirect model for all subsequent central banks. That view has persisted in some early-21st-century publications. In more recent scholarship, however, the issuance of banknotes has often been viewed as just one of several techniques to provide central bank money, defined as financial money (in contrast to commodity money) of the highest quality. Under that definition, municipal banks of the late medieval and early modern periods, such as the Taula de canvi de Barcelona (est. 1401) or Bank of Amsterdam (est. 1609), issued central bank money and count as early central banks.

https://en.wikipedia.org/wiki/Central_bank

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