Definition of central bank

central bank

The Central Bank (in English: Central Bank) is an independent organization obligated by the government of the state to manage the main financial functions, such as issuing the state’s currency, preserving its monetary value, contributing to regulating the amount of money supply, and following up all operations of commercial banks, and the central bank is defined as the national bank of countries It contributes to providing a set of banking and financial services to the government of the country to which it belongs, and is concerned with following up the commercial banking system and implementing the government's financial and monetary policies. Another definition of the central bank is a bank that is concerned with drawing up the financial plans of the state’s government, contributes to their implementation, and controls funds within the economic sector.

The establishment of the central bank

The establishment of the Central Bank is an advanced stage of the stages that contributed to the development of commercial banks in the nineteenth century AD. As the Swedish Central Bank is the oldest central bank in the world; As it was established in the year 1656 AD, and it became a central bank for Sweden in the year 1668 AD, but the Central Bank of England, which was established in 1694 AD, is the first in the world; Through its application to all the functions of the central bank, and its keenness to develop the principles of the art of bank exchange, and since that time this type of banking has spread, specifically in the continent of Europe, and central banks have appeared in Austria, the Netherlands, Finland, France, and other countries.

The Arab world witnessed the emergence of many central banks in Egypt, Algeria, Tunisia, Lebanon and other Arab countries, and central banks continued to witness a spread in the twentieth century AD; Especially after the recommendation of the Brussels Conference in 1920 AD that central banks should be established in all countries. With the aim of maintaining and strengthening international cooperation in the field of money, and supporting the stability of the banking process.

The development of the central bank

Before the twentieth century AD, central bank operations did not have a specific monetary system. As its role was limited to issuing securities for its affiliated countries, but with the passage of time the central bank acquired many tasks, functions, and duties that contributed to giving it a public status, and also affected the economic events associated with financial crises on the development of the central bank; Dealing with monetary policy has become dependent on it being part of the economic policy tools in general, and the central bank has become responsible for implementing this policy. Which contributed to his acquisition of the credit control function.

Characteristics of a central bank

The Central Bank is characterized by a set of characteristics, namely:

The Central Bank is a monetary institution belonging to public ownership; As the governments of countries manage and supervise the central bank by setting a set of laws according to which its duties and objectives are determined.
The Central Bank is at the forefront of the banking system; Because it has supervisory authority over commercial banks.
The Central Bank is not interested in achieving profits, but rather its existence depends on achieving the public interests of the state.
The Central Bank is distinguished by its ability to convert assets of a real or fixed nature, such as real estate, into cash assets.
The central bank is the financial institution that monopolizes the process of issuing money.
The Central Bank has a strong relationship with commercial banks, and has various methods and authority to influence the activities and activities of these banks. Which contributes to achieving the state's economic policy.
The Central Bank is an independent institution that manages monetary policy, and the executive authority does not interfere in the nature of its work.

functions of the central bank

The presence of the central bank in countries depends on the implementation of a set of basic functions, including:

Issuance of coins: It is the main and basic function of the central bank; Because it is the only authority that has the power to issue banknotes, based on obtaining the approval of the specialized government, and the central bank fully controls the total amount of currency in circulation.
Government bank: It is the function of the central bank as a bank for the government, and it is associated with its official nature that distinguishes it from other banks. As the government is keen to deposit its money in the central bank; Because of its huge amount, which is commensurate with the role of the Central Bank in preserving government funds, it also contributes to providing other services to the government, such as monetary and financial advice, and following up on stocks to set the state's general financial policy.
bank of banks: It is the function associated with the banking custom, which indicates the need for commercial banks to keep part of their financial reserves as deposits in the central bank; Which contributes to strengthening the function of the central bank by imposing its control over credit in banks, and settling debts that are exchanged between commercial banks.
Doing normal banking business: It is one of the functions implemented by the Central Bank and does not include dealing with individuals and establishments. However, most central banks maintain certain limits to deal with normal banking operations. Because of the presence of a group of important influences, such as the nature of the money market, and the insufficient number of banks present in the local market, to implement all banking services within the banking sector.

The independence of the central bank

The independence of the central bank is one of the most important means that guarantee the protection of the banking and financial sector from political influences. The independence of the central bank is defined as providing isolation for monetary policy from any persistent political pressures. following: