Definition of the Central Bank



Contents

  • 1 Central Bank
  • 2 The emergence of the central bank
  • 3 The evolution of the central bank
  • 4 The characteristics of the central bank
  • 5 Central Bank functions
  • 6 The independence of the central bank
  • 7 References

central bank

The Central Bank (English: Central Bank) is an independent organization that obliges the state government to manage the main financial functions, such as issuing the country's currency , maintaining its monetary value, contributing to the regulation of the amount of the money supply, and following up on all operations related to commercial banks, [1] and the central bank is defined as The National Bank of Countries, and contributes to providing a set of banking and financial services to the government of the country to which it belongs, and is interested in following up the commercial banking system and implementing the government's financial and monetary policies. [2] Another definition of the central bank is a bank that is concerned with developing financial plans for the state government, contributes to their implementation, and controls funds within the economic sector. [3]

The emergence of the Central Bank

The establishment of the Central Bank is an advanced stage 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. It was established in 1656 AD and became a central bank for Sweden in 1668 AD, but the Central Bank of England is Which was established in the year 1694 AD, the first in the world, through its application of all the functions of the central bank, and its keenness to develop the principles of the art of banking exchange, and since that time this type of bank has spread, specifically in the continent of Europe, and central banks have appeared in each of Austria and the Netherlands , Finland , France , and other countries. [4]


The Arab world witnessed the emergence of many central banks in each of Egypt , Algeria , Tunisia , Lebanon and other Arab countries, and central banks continued to witness proliferation in the twentieth century AD, especially after the recommendation of the Brussels Conference in the year 1920 AD that the establishment of central banks in all countries; Maintaining the enhancement of international cooperation in the field of money, and supporting the stability of the banking process. [4]

The evolution of the central bank

Before the twentieth century AD, the operations of the central banks were not of a specific monetary system, as their role was limited to the issuance of securities of the countries affiliated to them, but with the passage of time the Central Bank acquired many of the tasks, jobs, and duties that contributed to granting it the status of publicity, and also the events affected associated with the economic and financial crises on the development of the central bank; it has become dealing with monetary policy depends as part of the economic policy instruments in general, as the central bank became responsible for the implementation of the policy; which contributed to the acquisition of the function of Control credit. [4]

Central bank characteristics

The Central Bank is characterized by a set of characteristics, namely: [5]
  • The central bank is a monetary institution that belongs to the public domain, as the governments of the states administer and supervise the central bank by setting a set of laws according to which it defines its duties and objectives.
  • The central bank is at the forefront of the banking system, because it has control over commercial banks.
  • The central bank is not interested in achieving profits, but 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 it has various methods and authority to influence the activities and activities of these banks, which contributes to achieving the economic policy of the country.
  • The central bank is an independent institution in monetary policy management, and the executive branch does not interfere with the nature of its work.

Central bank functions

The presence of the central bank in countries depends on the implementation of a set of basic functions, including: [6]
  • Currency issuance: It is the main and primary function of the central bank, because it is the only authority that has the power to issue banknotes , relying on its obtaining the approval of the specialized government, and the central bank has full control over the total amount of the currency in circulation.
  • Government bank: It is the function of the central bank as a bank of the government, and it is associated with its official nature, which distinguishes it from other banks. Other for the government, such as monetary and financial consulting, and stock follow-up to establish the state's general fiscal policy.
  • Bank of banks: It is the function associated with the banking tradition that indicates the need for commercial banks to maintain a portion of their financial reserves as deposits in the central bank, which contributes to strengthening the function of the central bank by imposing its control on credit in banks, and the settlement of debts exchanged between commercial banks.
  • Practicing normal banking business: it is one of the jobs that the central bank applies and does not include dealing with individuals and establishments; however, most central banks maintain specific limits for dealing with normal banking operations, due to the presence of a group of important influences, such as the nature of the money market , and the insufficient number of existing banks 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 considered one of the most important means that guarantee protection of the banking and financial sector from political influences, and the independence of the Central Bank is defined as providing isolation for monetary policy from any ongoing political pressures, and is represented by setting monetary policy rules that limit the freedom of the Central Bank, and the Central Bank achieves independence within the entities The following: [7]
  • Supervisory independence: it is the implementation of rules, crisis management, and providing protection for supervisors in the central bank while carrying out their responsibilities.
  • Institutional independence: It is the preparation of clear arrangements for the appointment and dismissal of senior officials, the definition of management and organizational structure , responsibilities and roles of members of the Board of Directors, and the application of transparency during decision-making at the Central Bank.
  • Budget independence: It is the central bank’s freedom to appoint, train and pay rewards to employees.

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