A Central Bank: What Is It?
A central bank is a public institution that is into the currency management of a particular country or group of countries in which it functions and controls the money supply present in that country – to be specific, the amount of money in physical or digital circulation. The primary objective of central banks is to maintain stability in prices. In a few countries, central banks are also required by law to act in support of full employment.
U.S. Federal Reserve System (Fed)
The Federal Reserve, or Fed, is the central bank of the United States. It is regarded as the most influential central bank in the world. Due to the fact that the U.S. dollar is used in approximately 90% of all global currency transactions, the Fed’s influence has a significant impact on the value of numerous currencies. The Fed is composed of-
- The Board of Governors operates independently from the United States government but directly reports to Congress.
- The Federal Reserve Bank is comprised of twelve regional banks that oversee different regions of the country.
- Board members and the 12 presidents of reserve banks compose the Federal Open Market Committee (FOMC) (RB).
European Central Bank (ECB)
The European Central Bank (ECB) was established in 1999 to regulate monetary policy changes. The council is comprised of six members of the ECB’s executive board and the governors of all 19 national central banks in the eurozone. ECB operates with a great deal of planning in every respect. Additionally, it mandates price stability and sustainable economic growth. In contrast to the Fed, the ECB seeks to keep the annual increase in consumer prices below 2%.
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Bank of England (BOE)
In 1694, the Bank of England began operations. It is a public bank, which means it reports to the British people through their parliament. It is one of the most efficient central banks in the world, and its mission is to maintain England’s monetary stability. To achieve this, the central bank has set a 2% inflation target. In the event that prices exceed the benchmark level, the BOE will seek to curb inflation. A level significantly below 2% will prompt the central bank to take action to increase inflation.
Bank of Japan (BOJ)
In 1882, the Bank of Japan (BOJ) began operations. Its mission is to preserve price stability and the nation’s financial system. BOJ has a more active interest than the ECB in preventing an excessively strong currency because Japan’s economy is highly dependent on exports. The monetary policy committee of the BOJ consists of the governor, two deputy governors, and six additional members. It is not uncommon for the central bank to enter the open market to artificially weaken its currency by selling against U.S. dollars and euro currency.
Swiss Central Bank (SNB)
The Swiss bank is an independent bank responsible for a monetary policy that aims to maintain price stability while monitoring the country’s economic conditions. The company has offices in Bern and Zurich. Switzerland, like Japan and the eurozone, is export-dependent, which suggests that the SNB has no desire for its currency to become excessively strong. Therefore, its general tendency is to be more prudent with rate hikes.
Bank of Canada (BOC)
BOC is Canada’s central bank, charged with ensuring the stability of its financial system. Since 1998, when it set an inflation target of 1% to 3% with the aim of keeping it near 2%, it has done an excellent job of keeping inflation within the range. Monetary policy decisions are made by consensus vote in the BOC’s governing council, which consists of the bank’s governor, the senior deputy governor, and four other deputy governors who meet eight times a year.
Australia’s central bank, the Reserve Bank of Australia (RBA)
The Reserve Bank Act of 1959 outlines the functions of the Reserve Bank of Australia (RBA). The bank’s mission is to ensure currency stability, full employment, economic development, and social welfare. The monetary policy committee of the RBA consists of the central bank governor, the deputy governor, the secretary to the treasurer, and six federally appointed independent members. The inflation target of the central bank is between 2% and 3% per year. The committee meets on the first Tuesday of each month, excluding January, eleven times per year.
Reserve New Zealand Bank (RBNZ)
Reserve Bank of New Zealand (RBNZ) manages the nation’s economy, monetary policy, and employment levels with a solid financial system. Since 2000, this bank has maintained an inflation target range of 1% to 3%. However, it highlights a target of 1.5%, and failure could result in the RBNZ governor’s dismissal. Unlike other central banks, the central bank governor is ultimately responsible for monetary policy decisions. The
The list presented above includes the world’s most notable national banks. Despite the fact that they may have different objectives, plans, and deadlines, their instructions are essentially identical. That is, to ensure the monetary prosperity of their respective nations, to oversee their monetary frameworks, and to regulate their monetary forms. These banks frequently work together to ensure that the global economy remains under control.