Central Banking

Topics: Monetary policy, Central bank, Federal Reserve System Pages: 30 (10960 words) Published: July 1, 2013

Definition of 'Central Bank'

The entity responsible for overseeing the monetary system for a nation (or group of nations). Central banks have a wide range of responsibilities, from overseeing monetary policy to implementing specific goals such as currency stability, low inflation and full employment. Central banks also generally issue currency, function as the bank of the government, regulate the credit system, oversee commercial banks, manage exchange reserves and act as a lender of last resort.

The central banking system in the U.S. is known as the Federal Reserve System (commonly known as "the Fed"), which is composed of 12 regional Federal Reserve Banks located in major cities throughout the country. The main tasks of the Federal Reserve are to supervise and regulate banks, implement monetary policy by buying and selling U.S. Treasury bonds and steer interest rates. Ben Bernanke currently serves as the chairman of the Board of Governors of the Federal Reserve.

central bank
A nation's principal monetary authority, such as the Federal Reserve Bank, which regulates the money supply and credit, issues currency, and manages the rate of exchange.

central bank - a government monetary authority that issues currency and regulates the supply of credit and holds the reserves of other banks and sells new issues of securities for the government central bank-  a national bank that does business mainly with a government and with other banks: it regulates the volume and cost of credit B. Overview of Functions and Operations

The BSP’s primary objective is to maintain price stability conducive to a balanced and sustainable economic growth. The BSP also aims to promote and preserve monetary stability and the convertibility of the national currency. Responsibilities

The BSP provides policy directions in the areas of money, banking and credit. It supervises operations of banks and exercises regulatory powers over non-bank financial institutions with quasi-banking functions. Under the New Central Bank Act, the BSP performs the following functions, all of which relate to its status as the Republic’s central monetary authority. Liquidity Management. The BSP formulates and implements monetary policy aimed at influencing money supply consistent with its primary objective to maintain price stability.  Currency issue. The BSP has the exclusive power to issue the national currency. All notes and coins issued by the BSP are fully guaranteed by the Government and are considered legal tender for all private and public debts.  Lender of last resort. The BSP extends discounts, loans and advances to banking institutions for liquidity purposes.  Financial Supervision. The BSP supervises banks and exercises regulatory powers over non-bank institutions performing quasi-banking functions.  Management of foreign currency reserves. The BSP seeks to maintain sufficient international reserves to meet any foreseeable net demands for foreign currencies in order to preserve the international stability and convertibility of the Philippine peso. Determination of exchange rate policy. The BSP determines the exchange rate policy of the Philippines. Currently, the BSP adheres to a market-oriented foreign exchange rate policy such that the role of Bangko Sentral is principally to ensure orderly conditions in the market.  Other activities. The BSP functions as the banker, financial advisor and official depository of the Government, its political subdivisions and instrumentalities and government-owned and -controlled corporations. The central bank generally performs the following functions: 1. Bank of Note Issue:

The central bank has the sole monopoly of note issue in almost every country. The currency notes printed and issued by the central bank become unlimited legal tender throughout the country. In the words of De Kock, "The privilege of note-issue was almost everywhere associated with the origin and development of...
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