We have heard the words " Central Bank " countless times, in fact it is quite common, but many do not know what it means or how to interact with it. We know how to handle checking accounts, credit cards and even loans, that is more or less what the central bank does, however it is not a conventional bank, in fact it is quite particular to call it somehow.
The functions of the central bank is to have the monetary authority of a country and its current currency, commonly used and legal tender. It is its responsibility to preserve the value of the national currency and its stability, it also promotes, in an organized manner, together with the government, the monetary and exchange conditions for the development of the national economy.
He is the director of the financial system and the monetary policy of a nation, he acts according to a set of purposes to regulate the circulation of currency and to be able to offer the value of money through stability, to impose himself on the cost and to provide credit for the most important economic sectors of a country, directly influences the inflows and outflows of capital, even controls the relationship with exports and imports. It is in charge of keeping inflation low, stable and predictable in short periods of time and sometimes long periods.
He is in charge of making the decision to raise the standard of living of citizens and if necessary to help institutions of the financial system, becoming a lender. Monetary policy is governed by these main objectives:
- Mechanisms to control inflation.
- Growth and employment.
- Smoothing of economic cycles (stages of growth and crisis in the economy).
- Prevention of financial crises.
- Reduction of the volatility of interest rates, exchange rate.
- Reduction of imbalances in the balance of payments.
The financial system and the central bank go hand in hand as far as monetary operations are concerned, since both play the role of financial agents and control treasury operations. The union of both make up the national payment system, the efficiency of the payment system is an infrastructure composed of institutions, rules, procedures and means established to generate a positive effect on the transfers of monetary values.
The central bank must ensure the proper functioning of the payment system by establishing its operating rules, regulating the currency and exercising exclusive character when issuing monetary species or as it is known " printing money ".
