Central Bank Form and Function
Central banks determine currency exchange rates and interest rates, among others. These institutions play a major role in ensuring and promoting the financial stability of a given country. In the US, the role of the Central Bank is delegated to the Federal Reserve. Here, you will learn more about the Federal Reserve and its structure.
What is the difference between central banks, investment banks, and commercial banks? What is the relationship between the Federal Reserve and other central banks?
While reading this, keep in mind what you learned earlier about the Fed and its structure. Here you will learn more about the different branches of the district banks and what they do. You will also come to know about the ECB and how it operates. What does central bank independence mean?
Learning Objectives
By the end of this chapter, students should be able to:
- Define central bank and explain the importance of central banking.
- Briefly sketch the history of U.S. central banking.
- Explain when and how a country can do without a central bank.
- Briefly sketch the structure of the Federal Reserve System.
- Explain how other central banks compare to the Fed.
- Define central bank independence and explain its importance.
- Explain why independent central bankers prefer lower inflation rates than government officials do.
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