We all have a rough idea about banks. For most of us, it is the place we keep our money or borrow money as loans so that we can pay it back to the banks with interests. For some of us, banks are one of the cruelest institutes in the world which fools people and make them work as slaves. Before drifting away too far, let’s come back to our main focus here, “The Central Bank”. Central Banks is the place you would want to go if all the commercial banks in your country run out of money. One could say that it is the bank which keeps the other banks in the country from failing. Central Bank is the place where notes are printed, and coins are circulated. It is said that the political concerns do not influence the Central Bank, but we all know what’s really happening. So let’s focus on the history of the bank and some of the other things you did not know about Central Banks.
History of Central Banks:
It is said that the Central Bank was formed when there were many problems with commercial banks. Between the years 1870 to 1914 the currencies were pegged to gold standards as it was something which is available in a limited amount. Thus, political parties could not make a decision and randomly print more money.
But during the World War I, countries were at war with each other, and they needed the money to buy resources to win the war. Most of them thought that printing more money was the only way to solve this problem, but they all ended up in high inflation. When the war ended, many countries decided to stick with the gold standards so that they will be able to stabilise their economy.
Central Bank’s influence on the economy:
Don’t blame the Central Bank if the economy of your country is sinking down the river. The Central Banks are responsible for regulating the inflation and it also helps in the stabilisation of prices. So, that’s what they tell us, and we, of course, believe that it is true. These Banks can buy government bonds, bills, notes etc. to reduce the circulation of money in the country. It is said that Central Banks is the one who lends money to commercial banks when it is not able to meet the demands of its clients.
The bottom line here is that Central Banks are responsible for maintaining the price inflations in the world and they are also the ones the commercial banks need to look up to when they are in need of money. Most of the Central Banks are not influenced by the government, but most of us are pretty sure on what that influence is based on.