What are Central Banks

🏦 What are Central Banks?

Central Banks are authorized banks by governments to regulate the domestic economy and to implement their monetary policies. Central Banks are controlling macroeconomic issues such as the level of interest rates, inflation, unemployment, trade, and the level of the domestic money supply.

 

Major Central Banks & Missions

Key Institutions & Roles: Setting monetary policy, manage currency stability, and intervene in Forex markets via tools like interest rates and asset purchases.

  • Federal Reserve (USD): ► Visit the FED

    Aims to maintain price stability and maximize employment. Decisions on interest rates significantly impact USD forex pairs.

  • European Central Bank (EUR): ► Visit the European Central Bank (ECB)

    Manages Eurozone monetary policy with a primary focus on inflation targeting (~2%) and overall financial stability.

  • Bank of Japan (JPY): ► Visit the Bank of Japan

    Uses yield curve control and direct market interventions to maintain low interest rates and stabilize the yen — often to support exports.

  • Swiss National Bank (CHF):

    Known for active intervention to avoid excessive franc appreciation. Notably removed the EUR/CHF floor in 2015.

  • Bank of England (GBP):  ► Visit Bank of England

    Influences the pound via interest rate policy and quantitative easing programs.

  • Bank of Canada (BOC): ► Visit Bank of Canada

    Bank of Canada is the Central Bank of Canada responsible for the Canadian monetary policy.

 

📊 Table: Central Bank Mandates and Tools

Central Bank Key Objectives Primary Instruments
  • Federal Reserve
 Price stability, employment Interest rates, Quantitative Easing (QE)
  • ECB
 Inflation near 2% Refinancing ops, Asset purchases
  • BoJ
 Deflation avoidance, growth Yield curve control, JPY interventions
  • SNB
 CHF stability Forex interventions, Negative rates
  • BoE
 Inflation control, stability Interest rates, QE

 

Central-Banks Related Terms

  • What is Interest

Interest is the cost paid for using borrowed money.

  • What is a Bank Rate

A bank rate is the interest rate charged by the central bank of a country when it lends capital to domestic commercial banks. It is used by central banks as a tool to control the money supply in the economy, focusing either on inflation or unemployment.

  • What are the Interbank Rates

Interbank rates are interest rates set by large international banks for lending capital to other international banks.

  • What is a Hard-Currency Policy

A monetary policy imposed by a central bank that aims to appreciate the domestic currency is called a “hard-currency policy.”

  • What is a Flexible Currency Policy

A monetary policy imposed by a central bank that aims to depreciate the domestic currency is called a “flexible-currency policy.”

 

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◘ What are Central Banks

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