Finance
How do central banks work?
A central bank manages a country's money and economy. It sets key interest rates, controls the money supply, and acts as a lender of last resort to banks — aiming to keep prices stable and the financial system healthy.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how central banks works.
Step by step
- 1It manages a nation's money supply and interest rates.
- 2It aims to keep prices stable and the economy steady.
- 3It acts as a 'lender of last resort' to banks.
- 4Examples include the US Federal Reserve and the RBI.
Frequently asked questions
- How do central banks work?
- They set interest rates, manage the money supply, and oversee banks to keep prices and the economy stable.
- How do central banks fight inflation?
- Often by raising interest rates, which cools borrowing and spending to slow rising prices.
- What does 'lender of last resort' mean?
- The central bank can lend to banks in crisis to prevent the financial system from collapsing.