Central Banks and Their Role in Crypto Regulation

Central Bank is the bank that is responsible for formulating and communicating monetary policy and for regulating member banks.

What is central bank?

A central bank is a financial institution that has privileged control over the creation and distribution of money and credit for a country or an economic union of countries.In modern economies, a central bank is responsible for formulating and transmitting monetary policy, as well as regulating member banks. Thus, the central bank is responsible for supervising and managing a country’s monetary system and policies, including by regulating the money supply and setting interest rates.

Central banks can either soften or tighten the money supply in a country, thereby determining the cost and availability of credit. Regulating the national money supply consists of issuing fiat currency and setting interest rates on loans and bonds.

The purpose of raising or lowering interest rates may be to stimulate or balance growth, industrial activity, and consumer spending. All decisions are made in accordance with the specific goals of the national economy.

Central banks also hold a country foreign exchange reserves, which can be used to support liabilities or shape monetary policy. In times of financial crisis, a central bank may also act as lender of last resort to any troubled financial institution or government.

Central banks regulate member banks through measures such as setting capital and reserve requirements, or necessary policies such as deposit guarantees.