A financial institution with exclusive authority over creating and distributing money and credit for a country or a group of countries is known as the central bank. In contemporary economies, the central bank is typically in charge of monetary policy formulation and member bank regulation.
Inherently non-market-based or even anti-competitive institutions are central banks. Even though some have been nationalized, many central banks are not part of the government and are therefore frequently hailed as politically independent. However, even though a central bank isn’t technically the government’s property, its rights are still created and safeguarded by the law.
The crucial characteristic that sets a central bank apart from other banks is its legal monopoly position, which grants it the right to print money and banknotes. Like checking deposits, private commercial banks may issue only demand liabilities.
When commercial banks, other institutions, and occasionally even the government are in financial trouble, a central bank serves as an emergency lender. In addition, when a government needs to raise money, the central bank offers a politically appealing alternative to taxation by buying government debt obligations.
