The Roles of Central Banks

Central banks are designated in law as being the monopoly suppliers of a currency.

Initially, these monopolists supplied money that could be converted into a pre-specified amount of gold; they adhered to a gold standard.

Money in all major economies today is not convertible by law into anything else, but it is, in law, legal tender.

Money that is not convertible into any other commodity is known as fiat money. Fiat money derives its value via government decree and because people accept it for payment of goods and services and for debt repayment.

Roles normally assumed by the central bank:

Monopoly supplier of the currency

Banker to the government and the bankers’ bank

Lender of last resort

Regulator and supervisor of the payments system

Conductor of monetary policy

Supervisor of the banking system