central bank

The bank responsible for issuing currency in a country. It sets short-term interest rates, supervises the national banking system as a whole, and is often responsible for foreign-exchange dealings on behalf of the government. It also holds the commercial reserves of the nation's clearing banks and acts as a lender of last resort to commercial banks that get into financial difficulties.

Although typically independent of central government, a central bank will work closely with it, especially in implementing monetary policy. The earliest bank to take on the role of central bank was the Bank of England. In the USA the Federal Reserve System was established 1913. Since 1999 the European Central Bank (ECB) has assumed the monetary policy powers of the central banks of those European Union countries that have adoped the euro as their currency.