For Beginners: The Role of Central Banks

We often see and hear the term “central banks” in financial news, but what do they do that makes them so prominent that every decision they make could shake the markets？

Keep reading for more information.

A central bank is a public institution overseeing a country's or a group of countries' currency and monetary systems. Its main goal is to maintain price stability by controlling the money supply and the amount of money available in circulation.

The decision made by a central bank could hugely impact the strength and weakness of a country's currency. Remember that the movement of a currency is dependent on its demand and supply, that goes back to Economics 101!

When the supply of a currency is high while the demand is low, the currency will weaken. On the flip side, if the demand is high, but the supply of it is low, the currency will gain strength. As a forex trader, you need to know the right scenario to take a long or short position. Therefore, being able to interpret how a central bank's decision through this fundamental knowledge could be beneficial too.

In addition, central banks also have a wide range of other responsibilities that involves implementing specific strategies to achieve certain goals, such as keeping the inflation rate low, ensuring a high employment rate, supervising commercial banks, regulating the credit system and more.

The United States Federal Reserve Bank (US)

The European Central Bank (ECB) (EUR)

The Bank of England (GBP)

The Bank of Japan (JPY)

National Bank of Switzerland (CHF)

The Bank of Canada (CAD)

Australia's Reserve Bank (AUD)

New Zealand Reserve Bank (NZD)