Understanding the Four Major Functions of Central Banks at a Glance

Many brothers ask, what is a central bank?

Answer: It is an institution established by the government, responsible for controlling the national money supply and credit conditions, and supervising the financial system.

1. Main Functions

The People's Bank of China is our central bank, which operates under the leadership of the State Council, and its main functions are to formulate and implement monetary policy, prevent and resolve financial risks, and maintain financial stability.

The functions of monetary policy and financial supervision are separated, highlighting the role of monetary policy regulation and emphasizing the role of financial stability to ensure the safety of the financial system.

① Issuing Bank: Monopolizes the right to issue currency, and is the only institution in the country authorized to issue currency.

② Bank of Banks: Centrally holds the reserve deposits of commercial banks, acts as the lender of last resort for commercial banks, and organizes settlements among national commercial banks.

③ Government Bank: Acts as an agent for the treasury's receipts and expenditures, acts as an agent for the issuance of national bonds, and provides credit to the government.

2. Business

As the issuing bank: The circulating currency is a major item under the liabilities of the central bank.

As the bank of banks: The business relationship between the central bank and financial institutions such as commercial banks is mainly reflected in the liabilities.

As the government bank: Listed under liabilities - accepting deposits from the government and other institutions, listed under assets - financing the government through holding government bonds, and reserving foreign exchange, gold, and other projects for the country.

Liability business: Deposit business, currency issuance business (the issuance channel is mainly completed through rediscounting, relending, purchasing gold and foreign exchange, and buying securities in the open market, etc.), other liability business (issuing central bank bonds and notes, foreign liabilities), and capital business.

Asset business: Discount and lending business (the central bank's discount and lending business mainly includes rediscounting and relending to commercial banks, various loans to the government, and loans to foreign governments and financial institutions, etc.), securities business (the securities bought and sold by the central bank are generally high-quality securities, such as government bonds, central bank bills, repurchase agreements, etc. Buying securities by the central bank injects base currency, while selling securities withdraws base currency.), gold and foreign exchange reserves, and other assets.