Central Banks

Lourdes Sola

Modern central banks are public, nonprofit, economic, and political institutions, with special functions derived from their command over monetary resources. They shape monetary policy, have a strong influence on exchange rates, and are the guardians of financial stability. Their decisions influence economic variables determining growth, output, and national development policies and have a bearing on the conditions of international financial and monetary cooperation. As a general rule, central banks are regulated by a mandate from government(s) specifying their goals and the conditions under which control over monetary resources is exercised. After situating the topic in its theoretical context, this entry discusses the rules and social institutions on which central banks' command over monetary resources ultimately rest; stresses the establishment of central banks as a trustworthy system of monetary authority, at the domestic and international levels; and examines the way in which the institution's power has been recast and strengthened in ...

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