Central Bank

AAA

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.

BREAKING DOWN 'Central Bank'

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.

RELATED TERMS
  1. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  2. Libyan Investment Authority

    The Libyan Investment Authority (LIA) is a government entity ...
  3. Bank Lending Survey

    A questionnaire circulated by a country's central banking authority ...
  4. Dual Banking System

    The system of banking that exists in the United States in which ...
  5. Alan Greenspan

    The former chairman of the Board of Governors of the Federal ...
  6. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
Related Articles
  1. Economics

    Understanding Janet Yellen's Role On Interest Rates

    Learn about Janet Yellen's role at the Federal Reserve. At first she was known as a dove, but Yellen has actually been quiet hawkish.
  2. Stock Analysis

    3 High-Yield Investment Grade Stocks You Should Consider

    Discover three high-yield investment-grade stocks for income and appreciation. Interest rate risk is the largest source of risk for investors.
  3. Economics

    China's Connection to the Recent Gold Crash

    Learn about the connection between the Chinese stock market crash and gold's crash. China is the world's largest source of gold demand.
  4. Economics

    The Federal Reserve

    Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
  5. Bonds & Fixed Income

    The Treasury And The Federal Reserve

    Find out how these two agencies create policies to stimulate the economy in tough economic times.
  6. Economics

    How Much Influence Does The Fed Have?

    Find out how current financial policies may affect your portfolio's future returns.
  7. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  8. Forex Education

    Get To Know The Major Central Banks

    The policies of these banks affect the currency market like nothing else. See what makes them tick.
  9. Forex Education

    Taking Advantage Of Central Bank Interventions

    These interventions provide great opportunities for investors and traders to seize entries into longer-term trends.
  10. Bonds & Fixed Income

    The Fed's New Tools For Manipulating The Economy

    The economy can be volatile when left to its own devices. Find out how the Fed smoothes things out.
RELATED FAQS
  1. What is the correlation between inflation and interest rate risk?

    There is a positive correlation between inflation and interest rate risk. Inflation basically occurs when there is too much ... Read Full Answer >>
  2. How does the risk of investing in the utilities sector compare to the broader market?

    The risk of investing in the utilities sector is less than the broader market. The two main reasons are the high dividends ... Read Full Answer >>
  3. What are the components of a financial account?

    The components of a country's financial account are its domestic ownership of foreign assets and the foreign ownership of ... Read Full Answer >>
  4. How is bond yield affected by monetary policy?

    Bond yields are significantly affected by monetary policy. Monetary policy at its core is about determining interest rates. ... Read Full Answer >>
  5. How do open market operations affect the money supply of an economy?

    The open market operations conducted by the Federal Reserve affect the money supply of an economy through the buying and ... Read Full Answer >>
  6. What are some examples of operations management in healthcare?

    Open market operations are a mechanism by which monetary policy is transmitted. Monetary policy aims to find the best balance ... Read Full Answer >>
  7. How can central banks use open market operations to manipulate short-term interest ...

    A central bank uses open market operations to manipulate short-term interest rates by increasing or decreasing the money ... Read Full Answer >>
  8. What's the difference between the prime rate and the repo rate?

    The prime rate is used as the index for rates offered in consumer lending and loan products. When government central banks ... Read Full Answer >>
  9. What developed countries have the greatest exposure to the automotive sector?

    The developed countries with the greatest exposure to the automotive sector are Japan and Germany. This is based on exposure ... Read Full Answer >>
  10. How did LIBOR come into use?

    LIBOR, or the London Interbank Offered Rate, originated in 1986 after major banks began doing significant daily trading in ... Read Full Answer >>
  11. When during the economic cycle should I invest in the automotive sector?

    The best time to invest in the automotive sector is when the economy is emerging from a recession and interest rates are ... Read Full Answer >>
  12. What are some examples of expansionary monetary policy?

    Examples of expansionary monetary policy are decreases in the discount rate, purchases of government securities and reductions ... Read Full Answer >>
  13. What impact does quantitative easing have on consumers in the U.S.?

    Quantitative easing is still a relatively new tool of monetary policy, and its impacts are not well-understood. Some of the ... Read Full Answer >>
  14. How do central banks inject money into the economy?

    Central banks use several different methods to increase (or decrease) the amount of money in the banking system. These actions ... Read Full Answer >>
  15. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  2. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  3. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  4. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  5. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  6. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!