There is no standard terminology for the name of a central bank, but many countries use the "Bank of Country" form (e.g., Bank of England, Bank of Canada, and Bank of Russia). Some are styled national banks, such as the National Bank of Ukraine. In other cases they may incorporate the word "Central" (e.g. European Central Bank, Central Bank of Ireland). In many countries, there may be private banks that incorporate the term national. Many countries have state-owned banks or other quasi-government entities that have entirely separate functions, such as financing imports and exports. In some countries, particularly in some Communist countries, the term national bank may be used to indicate both the monetary authority and the leading banking entity, such as the USSR's Gosbank (state bank). In other countries, the term national bank may be used to indicate that the central bank's goals are broader than monetary stability, such as full employment, industrial development, or other goals.
Interest Rate Interventions
Typically a central bank controls certain types of short-term interest rates. These influence the stock- and bond markets as well as mortgage and other interest rates. The European Central Bank for example announces its interest rate at the meeting of its Governing Council (in the case of the Federal Reserve, the Board of Governors).
Both the Federal Reserve and the ECB are composed of one or more central bodies that are responsible for the main decisions about interest rates and the size and type of open market operations, and several branches to execute its policies. In the case of the Fed, they are the local Federal Reserve Banks, for the ECB they are the national central banks. Interest rate interventions are the most common and are dealt with in more detail below.
Limits of Enforcement Power
Contrary to popular perception, central banks are not all-powerful and have limited powers to put their policies into effect. Most importantly, although the perception by the public may be that the "Central bank" controls some or all interest rates and currency rates, economic theory, (and substantial empirical evidence) shows that it is impossible to do both at once in an open economy. Robert Mundell's "Impossible Trinity" is the most famous formulation of
these limited powers, and postulates that it is impossible to target monetary policy (broadly, interest rates), the exchange rate (through a fixed rate) and maintain free capital movement.
Since most Western economies are now considered "Open" with free capital movement, this essentially means that central banks may target interest rates or exchange rates with credibility, but not both at once. Even when targeting interest rates, most central banks have limited ability to influence the rates actually paid by private individuals and companies. Even the US must engage in buying and selling to meet its targets. In the most famous case of policy failure, George Soros arbitraged the pound sterling's relationship to the ECU and (after making $2B himself and forcing the UK to spend over $8B defending the pound) forced it to abandon its policy. Since then he has been a harsh critic of clumsy bank policies and argued that no one should be able to do what he in fact did. The most complex relationships are those between the yen and the US dollar, and between the Euro and its neighbors. The situation in Cuba is so exceptional as to require the Cuban peso to be dealt with simply as an exception, since the US forbids direct trade with Cuba. US dollars were ubiquitous in Cuba's economy after its legalization in 1991, but were officially removed from circulation in 2004 and replaced by the Convertible peso.
Interest Rate Interventions
Typically a central bank controls certain types of short-term interest rates. These influence the stock- and bond markets as well as mortgage and other interest rates. The European Central Bank for example announces its interest rate at the meeting of its Governing Council (in the case of the Federal Reserve, the Board of Governors).
Both the Federal Reserve and the ECB are composed of one or more central bodies that are responsible for the main decisions about interest rates and the size and type of open market operations, and several branches to execute its policies. In the case of the Fed, they are the local Federal Reserve Banks, for the ECB they are the national central banks. Interest rate interventions are the most common and are dealt with in more detail below.
Limits of Enforcement Power
Contrary to popular perception, central banks are not all-powerful and have limited powers to put their policies into effect. Most importantly, although the perception by the public may be that the "Central bank" controls some or all interest rates and currency rates, economic theory, (and substantial empirical evidence) shows that it is impossible to do both at once in an open economy. Robert Mundell's "Impossible Trinity" is the most famous formulation of
these limited powers, and postulates that it is impossible to target monetary policy (broadly, interest rates), the exchange rate (through a fixed rate) and maintain free capital movement.
Since most Western economies are now considered "Open" with free capital movement, this essentially means that central banks may target interest rates or exchange rates with credibility, but not both at once. Even when targeting interest rates, most central banks have limited ability to influence the rates actually paid by private individuals and companies. Even the US must engage in buying and selling to meet its targets. In the most famous case of policy failure, George Soros arbitraged the pound sterling's relationship to the ECU and (after making $2B himself and forcing the UK to spend over $8B defending the pound) forced it to abandon its policy. Since then he has been a harsh critic of clumsy bank policies and argued that no one should be able to do what he in fact did. The most complex relationships are those between the yen and the US dollar, and between the Euro and its neighbors. The situation in Cuba is so exceptional as to require the Cuban peso to be dealt with simply as an exception, since the US forbids direct trade with Cuba. US dollars were ubiquitous in Cuba's economy after its legalization in 1991, but were officially removed from circulation in 2004 and replaced by the Convertible peso.
