In simple terms
A central bank is the public institution in charge of a country’s money. It usually issues banknotes, steers interest rates and works to keep prices stable. Some serve a group of countries: the European Central Bank manages the euro for all the countries that share it.
It is not a bank for the public. You cannot open an account or take out a loan there. Instead, it acts as a bank for commercial banks.
How it works
A central bank’s main lever is its key interest rate. When it raises that rate, commercial banks usually charge more on loans and pay more on savings. That tends to cool spending and slow inflation. When it cuts the rate, the reverse tends to happen.
It can also buy or sell government bonds and other securities to change the amount of money in the economy. In a crisis, it can lend to banks that run short of cash, a role known as lender of last resort.
Many central banks, in advanced and developing economies alike, now publish an explicit inflation target. Many are also given independence from day-to-day politics so they can resist short-term pressure.
Why it matters
Central bank decisions reach almost everyone. They affect what people pay on mortgages and loans, what savers earn and how fast prices rise. Many central banks also supervise commercial banks to make sure lenders are not taking too many risks.
The idea is old. Sweden’s parliament founded the bank now called the Riksbank in 1668. Today, 63 central banks and monetary authorities, from countries that together produce about 95% of world GDP, own the Bank for International Settlements.
Where you’ll see it
- News of rate decisions by bodies such as the European Central Bank, the Bank of England or the US Federal Reserve.
- Banknotes, which central banks usually issue.
- Mortgage and savings rates that follow the central bank’s lead.
- Reports on inflation and the health of the banking system.
Example
The central bank held its main interest rate steady, saying inflation was still above its target.
Often confused with
Commercial bank. Commercial banks take deposits and lend to people and businesses to make a profit. A central bank is a public body that oversees the money system and does not serve individual customers.
Key facts
- The ECB defines a central bank as a public institution that manages the currency of a country or group of countries and controls the money supply.1
- Central banks usually issue banknotes and coins, and often supervise commercial banks, manage foreign reserves and act as lender of last resort.1
- Central banks use monetary policy to achieve price stability, meaning low and stable inflation, usually by buying or selling securities in the open market.2
- The BIS is owned by 63 central banks and monetary authorities from countries that together account for about 95% of world GDP.3
- In 1668, Sweden's parliament decided to found the bank that took the name Sveriges Riksbank in 1867.4
Related concepts
In the news
Quick checkCan an ordinary person open a savings account at a central bank?Show answer
No. A central bank serves commercial banks and the government, not individual customers.
Sources
- European Central Bank. What is a central bank?. 10 July 2015 (accessed 11 September 2026)
- International Monetary Fund. Monetary Policy and Central Banking (factsheet). April 2025 (last updated) (accessed 11 September 2026)
- Bank for International Settlements. BIS member central banks. Undated (accessed 11 September 2026)
- Sveriges Riksbank. History. Undated (accessed 11 September 2026)
- Bank of England. What are interest rates?. 30 July 2026 (updated) (accessed 11 September 2026)
Editorially reviewed by Specialty Digest Editorial TeamLast reviewed September 11, 2026Researched and drafted with AI assistanceReport an issue