The Main Functions of Central Banking

Topics: Monetary policy, Money, Inflation Pages: 2 (347 words) Published: December 16, 2012
The main functions of the central bank:

The central bank control the issue of notes and coins
The power to control the amount of credit-money created by banks Central bank has also some control over non-bank financial intermediaries that provides credit It should use Tools and instruments of monetary policy in order to control: credit expansion, liquidity and the supply money. The central can act as the lender of last resort in order to prevent crises to protect depositors, widespread panic withdrawal and prevent the damage caused by the collapse of financial institution.

There are no marked differences between the federal reserve system (fed) and the euroarea European system of central bank (escb) Both are the sole issuers of banknotes for their economies and responsible for maintaining the stability of the banking system ESCB hasn’t direct role in banking supervision

The five majors forms of economic policy :
Monetary policy
Actions taken by central banks to influence the availability and cost of money and credit by controlling some measure of the supply money and structure of interests rates)
Fiscal policy
spending and taxation designed to influence economy, does the economy must raise taxation in order to boost economy and spending or raising taxes through cutting spending.

Exchange rate policy
involves the targeting of the particular value of a country’s currency exchange rate thereby influencing the flows within the balance of payments.

Prices and incomes policy
is intended to influence the inflation rate by means of either statutory or voluntary restrictions about increasement of wages

National debt management policy
is concernede with the manipulation of the outstanding stock of government debt instruments held by the domestic private sector with the objective of influencing the level and structure of the interests rates.

The four main functions of money :
Medium of exchange
Units of account
Store of value
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