A central bank works to ensure a country’s economic stability and its citizens’ financial well-being.
Definition
A central bank manages a country’s currency and monetary policy. It also offers financial and banking services for the government and the commercial banking system.
In some countries, a central bank is called a reserve bank or monetary authority. Canada’s central bank is the Bank of Canada.
What a central bank does
A central bank can have several main areas of responsibility. It typically works to preserve the value of money by setting monetary policy. A central bank also usually supplies bank notes for the country, and it can regulate or oversee parts of the financial system. All these activities help keep an economy stable.
The Bank of Canada has five key functions:
- Monetary policy—We use our policy interest rate to keep inflation low, stable and predictable under a system known as inflation targeting. A flexible exchange rate also contributes to achieving our monetary policy objectives.
- Financial system—We work to ensure the Canadian financial system is safe, stable and efficient. We provide central banking services, such as settlement accounts, and provide liquidity as needed to keep these systems—and, in turn, the economy—running smoothly.
- Currency—We design, issue and distribute Canada’s bank notes. We make sure these beautiful notes reflect our country and that they are secure, functional and accessible.
- Funds management—We are the financial agent for the federal government, managing its public debt programs and foreign exchange reserves. We also manage funds for other federal Crown corporations, central banks and international financial organizations.
- Retail payments supervision—We supervise payment service providers—the individuals and entities that accept and process retail payments—to protect users from certain risks.
We don’t oversee or regulate financial institutions, and we don’t have a mandate to protect consumers like some other central banks do. In Canada, the Office of the Superintendent of Financial Institutions and the Financial Consumer Agency of Canada have those responsibilities.