Importance of Central Bank in Global Economy

This report discusses the importance of central bank in the global economy, with a focus on the European Bank case study. It explores the role and significance of central banks in stabilizing national currencies, controlling inflation, and preventing future crises. The working of central banks and their impact on the economy are also examined.

IMPORTANCE OF CENTRAL
BANK IN GLOBAL ECONOMY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................1
REFERENCES................................................................................................................................2

INTRODUCTION
The global economy is the world economy or the worldwide economy. It is also the system
of trade and industry across the world that has emerged due to globalization. In this type of
economy there is an exchange of goods and service internationally. It is being expressed in the
monetary units and terms. Present report will lay emphasis on the importance of central bank to
the world economy. It will make reference to European Bank case study. It will also lay
emphasis on is the power of central bank essential to avert the future crisis.
MAIN BODY
The importance of central bank to the world economy
Central Bank could be defined as “Lender of last resort” that means bank is responsible for
providing the economy of nation with the funds where the commercial banks are not able to
provide the funds due to the shortage of funds supply. It prevents the banking systems of the
economy from failing. Primary goal of the central banks is of providing the country with the
currencies with the stability in prices controlling the inflation. Central bank is very important to
the organisation. Role and importance of the central bank in the global economy is explained in
detail in the report.
Central Bank is described as independent national authority which conducts the monetary
policy, provides financial services and regulates bank including the economic research. The goal
of the central bank is of stabilizing the national currency keeping the unemployment low &
preventing the inflations.
Central bank in developing economy performs both traditional as well as the non
traditional functions. Principle role is of issuing notes, banker to government, banker’s bank,
controller of the credit, banker’s bank and for maintaining the stable rate of exchanges. Central
bank aims at promotion as well as maintenance of the rising level of the production, employment
& real income of the economy. They are given with nth powers for promoting the growth of
economies.
Central banks influence the growth of the economy by improving the currency and credit
system. The banks & financial institutions require set up for providing the larger credit facility
and for diverting the voluntary savings in productive channels. Central banks also play important
role in bringing adjustments between the demand and supply of money.
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Working of central bank is really essential for maintaining the world economy. It is
idenepent bodies which are engaged in regulating and controlling the banks. Central bank are
also been involved in providing the financial services. It also involves the work related to
research. The research is mainly economic (Hartmann and Smets, 2018). It has been analyzed
that most of the decision related to central banks are been made up the members of their boards.
Central bank affects the economy by controlling the financial and liquidity aspects. They make
use of various monetary policy tools so that their goals and objectives can be achieved. Central
bank is been engaged in forming the reserve requirements. They limit the transactions and
enables bank to know about how much they can lend. Central bank in order to maintain the
economy also makes use of open market operations so that the buying and selling of securities
can take place adequately. They make sure that the nation does not face the situation of inflation,
so the banks maintain and operate rate the amount of securities that can be led by the bank. They
can also engaged in saving of economy from the future crisis.
The main function of the European Central bank is to manage the Euro and frame
financial and monetary policy (Pelizzon and et.al., 2016). It is really important to frame these
policies so that they can keep Economic condition of country strong. They make sure that
economy grows at a consistent level and also high number of job opportunities are being created
by them. This concept can assist them in saving the state from the future crisis or even for facing
the situation of recession. They are also engaged in setting the interest rate which is being used
by the commercial banks (Braun and Hoffmann-Axthelm, 2017). In this the bank provides loan
to the public on the interest rate that has been set up the European central bank. The main
decision in the European central bank is been made up by the governing council. They have a
control over the monetary and economic development and also define the Euro zone monetary
policy.
It has been analyzed that European central bank has too much political power and it is
really necessary during the time of crisis. It has also been evaluated that they govern countries
that are going to join the Euro units. The policies related to it are being formed by the general
local council (Lombardi and Moschella, 2016). Central banks are been considered as the
unelected official, they have the power to control economy and also central bank of Europe is
been working towards the welfare of citizen. Central bank has gained more power after Europe
has gone through the period of recession. European central bank has solved the underlying
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grounded problems and ended up being more superior and powerful. They have stabilized the
economy with the help of their policies and process. They have kept inflation in controlled with
the target of 2%. Inflation rate has been maintained.
CONCLUSION
From the above study it has been summarized that central bank has helped in maintaining
of economy. It has kept a pace on maintaining the inflation rate. The policies in European central
bank have been made by general local councils. They have set the target upon how much amount
commercial bank can lend. They set up interest rate and also develop policies for maintain
liquidity and monetary aspects. They have been unelected leaders during the time of recession.
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REFERENCES
Books and Journals
Pelizzon, L. and et.al., 2016. Sovereign credit risk, liquidity, and European Central Bank
intervention: Deus ex machina?. Journal of Financial Economics, 122(1), pp.86-115.
Hartmann, P. and Smets, F., 2018. The first twenty years of the European Central Bank:
monetary policy.
Lombardi, D. and Moschella, M., 2016. The government bond buying programmes of the
European Central Bank: an analysis of their policy settings. Journal of European Public
Policy, 23(6), pp.851-870.
Braun, B. and Hoffmann-Axthelm, L., 2017. Two sides of the same coin? Independence and
Accountability of the European Central Bank.
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