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Central Banks: National Currency, Money Supply, Interest Rates, Federal Reserve System And European Central Bank
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Published: October 4, 2007
Central banks are mainly responsible for ensuring a stable money supply for a particular country. The banks are able to do this by producing and printing the official national currency of the given country. At the same time, central banks, as part of their many functions, also regulate monetary policy. This ensures the national currency of a given country and that the corresponding money supply will not be severely affected during times when inflation becomes high.
Additionally, trying to prevent a rise in inflation is one other function central banks are known to discharge.
Since still technically considered banks, central banks also become regularly involved in lending programs. However, the banks are not particularly known to extend loan offerings to individual consumers. Rather, central banks act more as loan agents to most commercial banks, especially when the national currency is not doing well in the financial front, causing these banks to experience financial crisis.
Acting as loan agents to financially-strapped commercial banks is actually among the more critical duties of central banks. Banks are known to play actively in the financial situation of any given country and central banks are aware of this. That is why among the duties of central banks, bailing out banks undergoing financial difficulties is quite crucial. Central banks discharge this particular function by extending bank loans that generally have affordable interest rates. This way, central banks get the assurance that these banks will continue to operate, thus, averting a possible collapse of the whole banking system of a given country.
In the United States, central banks go by one official name, the Federal Reserve System. Established by virtue of the Federal Reserve Act of 1913, the Federal Reserve System is more commonly referred to as the US central bank.
Just as with central banks of other countries, the US central bank supervises the country's monetary system by making sure the currency is stable and there is ample money supply for the country. The chief functions, though, of the Federal Reserve System include guiding interest rates so they do not become too high for loan borrowers, and implementing the appropriate monetary policy that will serve as guides when the government purchases and sells Treasury Bills.
As for Europe, central banks are known by one name, the European Central Bank. The European Central Bank is considered by many financial experts as among the most important worldwide. This bank is in charge of 13 different countries belonging to the Eurozone.
Just as with typical central banks, the European Central Bank holds the primary task of keeping inflation rates low, thereby maintaining stable prices within the Eurozone. Interestingly, unlike other central banks, the European Central Bank is not designed to create a suitable European Union monetary policy. It instead serves more as a supporter of the EU monetary policy.
Regardless of where central banks are located, though, they are considered a vital part of any economy. Some find the actions of most central banks rather destabilizing financially speaking. But in truth, central banks act more as stabilizing agents, constantly trying to determine if the economy of a given country is in proper order.
Sources:
"Central Bank." Wikipedia -- The Free Encyclopedia. 4 Oct. 2007. 28 Sept. 2007. Wikimedia. http://en.wikipedia.org/wiki/Central_banks.
Heakal, Reem. "What Are Central Banks?" Investopedia. 7 May 2003. Investopedia ULC. 4 Oct 2007. http://www.investopedia.com/articles/03/050703.asp .
Longley, Robert. "The Federal Reserve System." About, Inc. 4 Oct. 2007. http://usgovinfo.about.com/library/weekly/aa081599 .htm.
"European Central Bank." Wikipedia -- The Free Encyclopedia. 4 Oct. 2007.Wikimedia. 4 Oct. 2007. http://en.wikipedia.org/wiki/European_Central_Bank .
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Since still technically considered banks, central banks also become regularly involved in lending programs. However, the banks are not particularly known to extend loan offerings to individual consumers. Rather, central banks act more as loan agents to most commercial banks, especially when the national currency is not doing well in the financial front, causing these banks to experience financial crisis.
Acting as loan agents to financially-strapped commercial banks is actually among the more critical duties of central banks. Banks are known to play actively in the financial situation of any given country and central banks are aware of this. That is why among the duties of central banks, bailing out banks undergoing financial difficulties is quite crucial. Central banks discharge this particular function by extending bank loans that generally have affordable interest rates. This way, central banks get the assurance that these banks will continue to operate, thus, averting a possible collapse of the whole banking system of a given country.
In the United States, central banks go by one official name, the Federal Reserve System. Established by virtue of the Federal Reserve Act of 1913, the Federal Reserve System is more commonly referred to as the US central bank.
Just as with central banks of other countries, the US central bank supervises the country's monetary system by making sure the currency is stable and there is ample money supply for the country. The chief functions, though, of the Federal Reserve System include guiding interest rates so they do not become too high for loan borrowers, and implementing the appropriate monetary policy that will serve as guides when the government purchases and sells Treasury Bills.
As for Europe, central banks are known by one name, the European Central Bank. The European Central Bank is considered by many financial experts as among the most important worldwide. This bank is in charge of 13 different countries belonging to the Eurozone.
Just as with typical central banks, the European Central Bank holds the primary task of keeping inflation rates low, thereby maintaining stable prices within the Eurozone. Interestingly, unlike other central banks, the European Central Bank is not designed to create a suitable European Union monetary policy. It instead serves more as a supporter of the EU monetary policy.
Regardless of where central banks are located, though, they are considered a vital part of any economy. Some find the actions of most central banks rather destabilizing financially speaking. But in truth, central banks act more as stabilizing agents, constantly trying to determine if the economy of a given country is in proper order.
Sources:
"Central Bank." Wikipedia -- The Free Encyclopedia. 4 Oct. 2007. 28 Sept. 2007. Wikimedia. http://en.wikipedia.org/wiki/Central_banks.
Heakal, Reem. "What Are Central Banks?" Investopedia. 7 May 2003. Investopedia ULC. 4 Oct 2007. http://www.investopedia.com/articles/03/050703.asp .
Longley, Robert. "The Federal Reserve System." About, Inc. 4 Oct. 2007. http://usgovinfo.about.com/library/weekly/aa081599 .htm.
"European Central Bank." Wikipedia -- The Free Encyclopedia. 4 Oct. 2007.Wikimedia. 4 Oct. 2007. http://en.wikipedia.org/wiki/European_Central_Bank .
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