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

The trade dispute may drag down China’s gross domestic product by 0.2 percentage point in 2018, according to an estimate by a member of the central bank’s monetary policy committee. WSJ, "China’s Trade Surplus With U.S. Hits Record as Fight Intensifies," 13 July 2018 Along with naming his son-in-law as the economy czar and claiming the exclusive power to pick central bank rate-setters, Turkish President Recep Tayyip Erdogan has done away with key qualifications for top-level appointments. Cagan Koc, BostonGlobe.com, "Erdogan diminishes requirements for top posts in Turkey," 11 July 2018 The rate is already below central bank estimates of levels sustainable in the long run, making it a potential source of upward pressure on wages and inflation. Fortune, "U.S. Added 213,000 Jobs in June as Unemployment Rose From an 18-Year-Low," 6 July 2018 Mexico's new president also promised prudent public finances and respect for the central bank’s autonomy. David Agren, USA TODAY, "Mexico's new populist president pledges to work cordially with President Donald Trump," 2 July 2018 The firms have also substantially increased their capital since the first stress tests led by the central bank in 2009, the Fed said. Deon Roberts, charlotteobserver, "Charlotte's big banks plan to boost their dividends, buy back more stock," 28 June 2018 Wages in Prague are close to those in Austria, notes an official at the Austrian central bank. The Economist, "Central Europe’s Goldilocks economies," 5 July 2018 When Brazilian generals took over in 1964, inflation was at 90 percent and gross domestic product growth at 3 percent, according to central bank figures. Fox News, "Many Brazilians look to military amid anger at politicians," 22 June 2018 Sweden, Canada, and Israel escaped the worst of the 2008-’09 financial crisis largely due to good, aggressive central banks. Dylan Matthews, Vox, "4 big questions about job guarantees," 27 Apr. 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

8 Sep 2018

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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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alleviating pain or harshness

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