The Role of Central Banks Topic18

The Role of Central Banks

A visual guide to understanding the backbone of our financial system.

Core Functions of a Central Bank

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Monetary Policy

The primary role is managing the nation's money supply to achieve economic goals.

• Set Interest Rates: To influence borrowing and spending.
• Control Inflation: To ensure price stability.
• Promote Growth: To foster consistent economic growth and employment.

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Financial System Stability

Ensuring the entire financial system is secure and stable.

• Supervise Banks: Regulating financial institutions.
• Lender of Last Resort: Providing liquidity in times of crisis.
• Mitigate Systemic Risk: Preventing the collapse of the financial system.

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Currency & Payment Systems

Managing the creation of currency and the infrastructure for payments.

• Issue Currency: Creating and distributing physical notes and coins.
• Operate Payment Systems: Running systems like RTGS (Real-Time Gross Settlement).
• Ensure Settlement Finality: Guaranteeing that once a payment is made, it is final and irreversible.

International Collaboration: The BIS

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Bank for International Settlements (BIS)

Often called the "central bank for central banks," the BIS fosters international cooperation to achieve global monetary and financial stability.

• Hosts Committees: Like the Basel Committee on Banking Supervision, which sets global banking standards.
• Supports Members: Assists its 60 member central banks, representing 95% of world GDP.
• Conducts Research: Explores topics like Central Bank Digital Currencies (CBDCs).

Central Banks Around the World

🇺🇸 US Federal Reserve (The Fed)

A federal system of 12 district banks. Key responsibilities include monetary policy, supervising banks, and maintaining financial stability.

Key Systems:

• Fedwire: Its Real-Time Gross Settlement (RTGS) system.
• FedACH: An Automated Clearing House (ACH) for batch payments.

🇪🇺 European Central Bank (ECB)

The central bank for the 19 Eurozone countries. Its main task is to maintain the price stability of the Euro.

Key Systems:

• TARGET2: The RTGS system for the Euro.
• TIPS: A service for instant settlement of SEPA payments.

🇬🇧 Bank of England (BoE)

The UK's central bank, founded in 1694. It aims for monetary and financial stability and supervises banks through its Prudential Regulation Authority (PRA).

Key Systems:

• CHAPS: The UK's high-value RTGS system.

🇸🇬 Monetary Authority of Singapore (MAS)

Acts as the central bank, financial regulator, and is a key driver of FinTech innovation in Asia.

Key Initiatives:

• Project UBIN: Explored the use of Distributed Ledger Technology (DLT) for payments.
• MEPS+: Singapore's RTGS system.

🇦🇺 Reserve Bank of Australia (RBA)

A key catalyst in developing modern payment infrastructure to enable real-time payments for all users.

Key Systems:

• New Payments Platform (NPP): Allows 24/7 real-time payments with rich data.
• Fast Settlement Service (FSS): Settles NPP payments individually in real-time.

Infographic based on "Topic 18: The role of central banks".