What is a central bank?

A central bank is a financial institution responsible for managing a country’s currency, money supply, and interest rates. It’s typically the regulator of the country’s financial system and its commercial banking system. For more on the UK’s central bank and what it does, see our article article on the Bank of England,

How is a Central bank different from a normal bank?

Commercial banks (normal banks or building societies) provide financial services directly to customers. This includes accepting deposits, providing loans (such as mortgages, car loans, and personal loans), and offering products like current and savings accounts.

Central banks typically don’t have private individuals or businesses as customers. Instead, their ‘customers’ are other banks, the government, and financial institutions.

Commercial banks are profit-driven entities. They aim to earn profits for their shareholders by charging interest on loans, fees for services, and by investing deposited funds. Central banks, however, are not profit-driven. Their objective is to maintain economic stability, controlling inflation and ensuring the smooth functioning of the financial system.