Finance
What is A central bank?
A central bank is the institution that manages a country's money supply and interest rates to keep the economy stable. Examples include the US Federal Reserve, the Reserve Bank of India, and the European Central Bank.
See it, don’t just read it.
Watch a 2-minute lesson with voice + animation that explains a central bank.
Key things to understand
- 1It controls the supply of money and sets key interest rates for the economy.
- 2Its main goals are usually stable prices (low inflation) and a healthy job market.
- 3It acts as a 'lender of last resort' to banks during financial crises.
- 4It is typically kept independent from day-to-day politics to keep policy credible.
- 5By raising or lowering rates, it can cool down or stimulate the economy.
Frequently asked questions
- What does a central bank actually do?
- It manages a nation's money and credit — setting interest rates, influencing how much money circulates, and overseeing banks — to keep prices and the financial system stable.
- How does a central bank fight inflation?
- Usually by raising interest rates, which makes borrowing costlier and spending slower, cooling demand and easing the upward pressure on prices.
- Is a central bank the same as a regular bank?
- No. You don't hold an account there. It's the bank for the government and other banks, focused on managing the whole economy rather than serving individual customers.