A central bank, reserve bank or monetary authority, is an entity responsible for the monetary policy of its country or of a group of member states, such as the European Central Bank (ECB) in the European Union or the Federal Reserve System in the United States of America. Its primary responsibility is to maintain the stability of the national currency and money supply, but more active duties include controlling subsidized-loan interest rates, and acting as a "bailout" lender of last resort to the banking sector during times of financial crisis (private banks often being integral to the national financial system). It may also have supervisory powers, to ensure that banks and other financial institutions do not behave recklessly or fraudulently. A central bank is usually headed by a governor, but the titles are president, chief executive, and managing director respectively for the European Central Bank the Hong Kong Monetary Authority and the Monetary Authority of Singapore. In most countries the central bank is state owned and has a minimal degree of autonomy, which allows for the possibility of government intervening in monetary policy. An "Independent central bank" is one which operates under rules designed to prevent political interference; examples include the US Federal Reserve, the Bank of England (since 1997), and the Bank of Canada, the Reserve Bank of Australia, the Banco de la República de Colombia, and the European Central Bank.
Activities and responsibilities
Functions of a central bank (not all functions are carried out by all banks):
• Implementing the basis of monetary policy
• Monopoly on the issue of banknotes
• Controls the nation's entire money supply
• The Government's banker and the bankers' bank ("Lender of Last Resort")
• Manages the country's foreign exchange and gold reserves and the Government's stock register
• Regulation and supervision of the banking industry
• Setting the official interest rate - used to manage both inflation and the country's exchange rate - and ensuring that this rate takes effect via a variety of policy mechanisms.
