A central bank or reserve bank is the organization within a specific country or coalition of countries that regulates all of the currency supplies and related policies for that particular area. Central banks perform various actions, but its most important job is to make certain that the national currency and money supply remain stable. Depending on the country these may be government owned and controlled or may be run under regulations that are specifically created to prevent extensive government interference.
The specific functions of a central bank may include many different tasks. This type of bank has responsibilities that may include distribution of currency and implementation of monetary policy. Regulating the banking industry and setting official interest rates may also be done there. Some countries ask their central bank to be the government’s bank and also a lender to smaller banks, allowing them an out within difficult times.
In the United States, the Federal Reserve is the principal monetary authority. Created by Congress, it operates independent of the US federal government. In Europe, the European Central Bank controls the euro, which is a form of currency that is used by the member countries of the Eurozone — a subset of the European Union (EU). Member countries of the Eurozone have done away with their own national currency and central banking system. The only European countries without bank of this kind are Monaco and Andorra.
Those who believe that central banks are a vital part of the worldwide economy may argue that without some type of regulatory agency in place for limiting currency, setting interest rates, and regulating banking practices, a country would quickly fall into financial disaster. Proponents may hold that without such control, the value of the country’s currency would be unstable, interest rates would skyrocket, and banks would likely shut down, leaving depositors without a chance to recover their money. Others argue that central banks disrupt the openness of financial markets and cause more harm than good.