Central bank / National bank

The central bank is the central bank of the given state, whose most important task is to preserve the predictability of consumer prices - in technical terms, price stability.

The central bank (also known as the central bank or national bank) is the main guardian of the financial system of the given country. In the United States, for example, this role is played by the Federal Reserve, in the European Union it is European Central Bank is loading.

The most important task of the central bank is price stability protection. price stability is not the same inflation by reducing it to zero, because inflation that is too low is not healthy from the point of view of the economy. Therefore, central banks usually assign a inflation target, and they strive to keep the consumer price index close to it. 

The central bank's inflation target is above all a with interest rate policy achieve it. Commercial banks, i.e. those financial institutions with which we have a relationship as an entrepreneur or private individual, can deposit their excess funds with the central bank as a deposit and can borrow from the central bank credit, when they need it. 

These deposits and credits have a interest rate it is determined by the central bank, and thus can influence the interest rate that develops in the entire financial institution system. With this method, the central bank can cool down (raise interest rates) or heat up (cut interest rates) the economy, thereby influencing inflation. 

The most important interest rate is the current one base interest rate. This is always the interest that the central bank pays on deposits placed with it by any bank, in any amount. Whether it's just one day, one week or longer term insert, or bond interest, a matter of decision. The point is that no one should offer a lower interest rate than this for the money of the commercial banks, thus setting a lower limit for the interest rate of the loans available from the banks.

In addition, central banks can work with a number of tools to preserve price stability, which are referred to together set of monetary policy tools, respectively monetary policy. Since the financial crisis of 2008, monetary policy tools other than interest rate policy have come to the fore, because inflation throughout the developed world has fallen into the "too low" range, and interest rates were already so low that there was nowhere to lower them.

In this situation, central banks announced bond purchase programs around the world. This is what we call it For Quantitative Easing (QE). In this case, the central bank buys the bonds issued by the state (but in the United States, corporate bonds also), which makes it easier public finances financing and directly pumping money into the economy to stimulate it.

In addition to preserving price stability and helping the economy, the central bank also has many other tasks. It supervises and controls the entire system of financial institutions and also regulates the activities of banks. In fact, if necessary, he even pulls the banks out of trouble if they get into trouble. 

Governments generally like low interest rates, which boosts the economy and increases employment, which means overall popularity. Not to mention, low interest rates also reduce the cost of financing public finances, so governments tend to put pressure on central banks to keep interest rates low. However, in order to ensure price stability, central banks sometimes have to make the opposite decision, which is why the rules set in stone in most countries guarantee the independence of the central bank.