The Economics of Banking

CHAPTER 7 Central banking

DOI: 10.4324/9780429356773-10

7.1 Introduction

Since the first central bank, Sveriges Riksbank started operations in Sweden, 1668, central banks have been established in most economies and monetary unions, as domestic monetary authorities. Usually, a central bank is not only a monopolistic issuer of legal tender banknotes and coins, but also an institution that is designed to stabilize the economy through its monetary policy. In reality, a central bank is well characterized by its legal mandates: although those mandates differ across central banks, maintaining price stability is usually mandatory for most central banks; very often, central banks also endeavor to preserve the stability of a financial system. Although ...