The role and functions of central banks

Central banks are public institutions responsible for managing a nation's or economic area's currency and financial system. Unlike commercial banks that serve private clients, central banks operate at a macroeconomic level to maintain economic and financial stability.

Key functions include implementing monetary policy to control the money supply and manage inflation. By adjusting interest rates, central banks influence the cost of loans, mortgages, and savings returns. For instance, lowering rates can stimulate investment during economic downturns, while raising rates can help curb high inflation by reducing the amount of money in circulation.