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Central banking: other functions

A modern society could not function efficiently without the services provided by a central bank. These organisations not only improve the well-being of the banking sector, but, through their oversight of the entire financial system make life better for all of us. Deciding on interest rates is one important activity (as described in the last chapter), but there are many others.

Banks are organisations with high levels of borrowing. That is, the deposits put into them plus the money borrowed from the wholesale financial markets is many times the amount put in by shareholders. Most of the money raised from depositors, wholesale lenders and shareholders is lent out. There are two constant dangers in this. ...

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