Introduction - What is Central Banking

At its most fundamental level, a central bank is simply a bank which other banks have in common. Small rural banks might each have deposit accounts at a larger urban bank to facilitate their transactions in the city. By this criteria, a financial system might have several central banks. More prosaically, a central bank is usually a government sanctioned bank that has specific duties related to the performance of the macroeconomy. Typically, an "official" central bank is charged by a central government to control the money supply for the purpose of promoting economic stability. It may have other duties as well, such as some degree of regulatory power over the financial system, operating a check-clearing system, or to perform general banking services for the central government. Most industrialized economies have a central bank. The Bank of England, the Bank of Japan, the German Bundesbank, and the United States Federal Reserve are all central banks. While their organizational structures and powers vary, each bank is responsible for controlling its nation's money supply.