Central banks

Main functions of a central bank
  1. Monetary policy function
    1. Setting of the main monetary policy interest rate
    1. Quantitative easing
    1. Exchange rate intervention (managed/fixed currency systems)
  2. Financial stability & regulatory function
    1. Supervision of the wider financial system
    1. Prudential policies designed to maintain financial stability
  3. Policy operation functions
    1. Lender of last resort to the banking system
    1. Managing liquidity in the commercial banking system
  4. Financial infrastructure provision function
    1. Overseeing the payments systems used by banks / retailers / credit card companies
    1. Debt management
    1. Handling the issue and redemption of issues of government debt
Current objectives of UK monetary policy
Monetary stability means stable prices and confidence in the currency. Stable prices are defined by the Government's inflation target, which the Bank seeks to meet through the decisions taken by the Monetary Policy Committee (MPC).
The Bank of England has been independent of the UK government since May 1997. The current governor is Mark Carney.
An Era of Extraordinary Monetary Policy
Central Banks of many advanced countries have made extraordinary sustained use of expansionary monetary policy in recent years:
Policy interest rates approaching the zero bound and remaining there (e.g. 0.5% in the UK and in the USA)
Negative policy rates in some countries (e.g. Japan, Sweden, Denmark and Switzerland)
Huge rise in the scale of quantitative easing (QE) designed to increase the base supply of money
Increasing use of exchange rate (currency) intervention as an instrument of monetary policy (i.e. a move towards managed floating)

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