Central Bank Importance

A Central Bank - or monetary authority - is a public institution, such as the Bank of England or the Sveriges Riksbank, given privileged control over the production and distribution of money supply - literally, the amount of money in circulation. The main objective of many central banks is price stability, issue and regulate currency, acting as a lender of last resort. Often central banks are charged with one or more specific duties, like attempting full employment or certain exchange rate for the currency. More often they are charged with finding the balance between maintaining low inflation and high economic growth. Doing this they set interest rates - the cost of money - at which they lend to banks under its jurisdiction which deeply influences interest rates throughout the country or region.

As modern economies show, the central bank is normally responsible for the formulation of monetary policy and the regulation of member banks. It’s important to highlight that a central bank is not a commercial bank: indeed an ordinary person is not allowed to open an account at the central bank or ask it for a loan and the Bank as a public authority is not motivated by profit and moreover, in some countries the law requires central banks to act in support of full employment. Even if only for commercial banks, but a central bank does act like a bank, and in that way influences the

The “responsibility doctrine” - which required the Bank to subsume its private interest to the public interest of the banking system as whole - was a result after 1825, 1837, 1847 and 1857 in Europe when a lot of central banks precipitated major panics and led to severe criticism of the Bank. But with the rule that the Bank could lend freely on the basis of any sound collateral offered, together with a penalty rate, the Central Banks never had another financial crisis