What do central banks do?

What do central banks do?


There are over 160 central banks in the world,
and while their role has changed over the years, primarily their duties include implementing
a monetary policy that provides employment, currency stability and controlled inflation.
Their aim is a so-called “Goldilocks economy”, not too hot, not too cold. They do this
through managing interest rates, setting the reserve requirement and acting as the lend of last
resort to the banking sector. Other responsibilites include controlling the nation’s entire money
supply and managing the country’s foreign exchange and gold reserves and the government’s
stock register. They raise rates to slow growth, and lower inflation. They lower rates
to boost growth. But when interest rates are almost zero, central
banks need to adopt different tactics, such as pumping money directly into the financial
system. This process is known as quantitative easing. Or QE. Quite simply, using money
they printed, they buy bonds, increase the amount of money in their financial system. This then encourages financial institutions to lend more, allowing businesses and consumers
to spend more, boosting the economy. After the financial crisis of 2007 to 2008, central
bankers led change, but as of 2015 their ability to boost economic growth has stalled,
and that has led many to question the role of the central bank. Andrew Haldane from the Bank of
England says: “Central bankers may need to accept that their good old days – of adjusting interest rates to
boost employment or contain inflation – may be gone for good”. Economist Willem Buiter argues that ‘central banks have
become the custodians of stability for financial markets, a role for which they lack both democratic
accountability and political legitimacy, ‘ And Mohamed El-Erian says: “We are rapidly nearing an
inflection point where central banks will find their policy approach increasingly and consequentially ineffective.” For now though, they remain the entity responsible
for overseeing the monetary system for a nation, or in the ECB’s case, a group of nations.

2 Comments

  • Giovanni Marrero

    November 25, 2018

    Propaganda

    Reply
  • lorax2013

    June 8, 2019

    years with under 2k views is the #2 hit for “central bank”. Not one anti-central bank video in sight. In early Youtube you would only get one propaganda video like this on the first one or two pages of hits. This is despite countless very well made anti-central bank videos on YT with millions of views each. All hidden now. Hopefully the extreme state of censorship will lead to a new platform soon.

    Reply

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