Central Bank: functions, role, meaning

The central bank is the most important link in the banking system and its management in any country. The functions of this institute are diverse and quite interesting, because the issues he is dealing with lie in the most diverse spheres of the economic life of the state. Its main task is to ensure the stability of the national currency within the country and to maintain its exchange rate in the foreign market.

In most cases, the financial body does not submit directly to the state. Often formally, the owner of the bank's property is a state body, but usually the shareholders are private individuals. The main functions of the central bank of the country are extremely important and are the same for almost all states:

• Firstly, the Central Bank is the issuer of banknotes operating in the country, that is, roughly speaking, prints money;
• Secondly, it acts as a "bank of banks", serves the needs of commercial financial institutions and monitors the stability of the system as a whole, taking on the preservation of mandatory reserves;
• Thirdly, it serves as a conductor of the monetary and credit policy of the state, in connection with which it is engaged in the implementation of a number of actions.

So, this is what any central bank is engaged in in general. The functions that he performs in connection with the conduct of monetary policy are also noteworthy and interesting, they resonate with his relations with commercial banks. The Central Bank controls inflation and the exchange rate of the national currency, and it does this with the help of three financial instruments:

1. Money supply management. Excessive amount of money reduces demand for them and reduces their cost. As a result, the currency on the foreign market becomes cheaper, and the rate of inflation is accelerating. A rough tool that seriously affects the processes in a market economy.
2. Management of the base interest rate and the amount of mandatory reserves. By reducing and increasing these two indicators, the Central Bank also manages the "price" of money and regulates the operation of the banking system, through it affecting supply and demand in the money and commodity markets.
3. Currency interventions. The most commonly used tool, which has a relatively insignificant effect on inflation, but helps to control the exchange rate of the national currency. Buying or selling a reserve or national currency in open markets, the Central Bank can influence its mass in the economy and, consequently, its price. In addition, he can deal with the purchase and sale of securities issued by the state.

The central bank, whose functions, depending on the country, may be narrower or wider, of course, is an indispensable organ in the state's financial and credit system . In addition to conventional banks, he makes lending to the state, dealing with domestic loans and selling government bonds issued by the Ministry of Finance or a similar body. The functions of the Central Bank of, and probably also of other countries, do not end there. Most Central Banks also collect and publish statistical information on macroeconomic indicators, the establishment of official currency quotations and other additional tasks.

In the economic system of any country, it is difficult to find an authority that deals with the same important things as the central bank. The functions that he performs, and the tasks he solves, are so important that without them, perhaps, in a market economy the state simply can not exist.