central bank


Definition of central bank

: a national bank that operates to establish monetary and fiscal policy and to control the money supply and interest rate

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Other Words from central bank

central banker noun

Examples of central bank in a Sentence

Recent Examples on the Web

Liu's delegation included China's central bank governor and commerce minister. Joe Mcdonald, chicagotribune.com, "U.S., China discuss American exports in bid to narrow U.S. trade deficit," 2 June 2018 However, the fed funds futures market Monday morning gave almost a 50 percent probability that the central bank would move one more time in December... Tory Newmyer, Washington Post, "The Finance 202: Wells Fargo shrinks lobbying team as it faces crisis in Washington," 24 Apr. 2018 Canada’s central bank has lifted its key rate, the benchmark overnight interest rate, five times since mid-2017 to its current level of 1.75%. Kim Mackrael, WSJ, "Bank of Canada Is Expected to Keep Interest Rates on Hold Amid Lower Crude-Oil Prices," 8 Jan. 2019 Iran’s central bank has lifted a ban on exchange offices, allowing them to resume work in a move aimed at bringing in badly needed hard currencies. Nasser Karimi, The Seattle Times, "Iran president strikes hard line as some US sanctions resume," 6 Aug. 2018 The country’s central bank has since taken additional steps to ease a shortage of dollars and cushion the impact of sanctions. Nick Wadhams, BostonGlobe.com, "US pressing allies to end Iran oil imports by Nov. 4, official says," 26 June 2018 Erdogan would probably seek direct control over the country’s central bank. Umar Farooq, latimes.com, "Turkey's President Erdogan embraces new powers as electoral council declares him election winner," 26 June 2018 The central bank lifted its federal fund rate -- what banks charge each other for overnight loans -- by a quarter percentage point to a range of 1.75% to 2%. Paul Davidson, USA TODAY, "Fed decision: Federal Reserve hikes rates to range of 1.75% to 2%, ups forecast to 4 hikes in '18," 13 June 2018 Among other key appointments, Ismael Dioubate, formerly director of exchanges at the country’s central bank, was named budget minister and head of Guinea’s private investment promotion agency. Ougna Camara, Bloomberg.com, "Guinea Retains Mining Minister in Broad Cabinet Reshuffle," 26 May 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'central bank.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of central bank

1841, in the meaning defined above

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Last Updated

10 Feb 2019

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The first known use of central bank was in 1841

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Financial Definition of central bank

What It Is

A central bank is an institution responsible for determining the monetary policy of a nation or group of nations.

How It Works

Exact duties vary by country, but generally a central bank's main goals are to maintain a stable currency, control inflation and maximize employment through the promotion of reasonable economic growth.

Examples include the Federal Reserve Bank (U.S.), the European Central Bank (EU) and the Bank of Japan (Japan).

Central banks have several methods of controlling monetary policy, but the three most basic and widely used tools are short-term target rates, open market operations, and capital requirements.

Short-term rate changes are the most publicly followed central bank actions. Entities with a fiat currency (a currency backed by the full faith of the issuer) can loan as much money to banks as they want. The lower the rate, the more banks want to borrow in order to lend to consumers. Thus, by changing the short-term rate target a central bank can influence the amount of lending and borrowing in a country.

Open market operations are another key economic influence. With this method, the central bank either buys or sells Treasury bonds. Buying Treasuries puts money into circulation and selling Treasuries removes it -- thereby increasing or decreasing the supply of money in an economy.

The last tool is the use of capital requirements. Commercial banks take in deposits and then loan it out at higher interest rates. But they don't necessarily loan out one dollar for every dollar they take in; banks are required to keep a certain amount of capital on hand in order to safely cover a surge in withdrawals from customers. Increasing this capital requirement results in less money being available for lending -- thus potentially slowing an economy. Likewise, lowering the capital requirement leads to a greater amount of funds being available for borrowing.

Why It Matters

Central banks are the heart of a country's monetary policy, and their actions exert considerable influence on every aspect of a country's economy. Thus, central banks are key in ensuring boom and bust cycles do not hurt the long-term direction of their respective economies and ensuring steady, stable economic growth.

Source: Investing Answers

central bank


English Language Learners Definition of central bank

: a bank that does business with other banks and with the government and that controls a country's money supply and interest rates

central bank

Legal Definition of central bank

see bank

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Rhyming Dictionary: Words that rhyme with central bank

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