CENTRAL BANK

  The Central Bank is a financial institution charged with several different functions, the most important of which is managing a country's monetary policy.

   A guardian of the monetary system. A central bank sets short -term interest rates and oversees the health of the financial system, including by acting as lender  of last resort to commercial banks that get into financial difficulties. The federal Reserve, the central bank of the united states, was founded in 1913. The bank of England , known affectionately as the " old lady " of thread Needle street ", was established in 1694, 26 years after the creation of the world's first central bank in Sweden. with the euro in 1999, the monetary policy powers of the central banks of 11 European countries were transferred to a new European central bank, based in Frankfurt.

    During the 1990 s there was a trend to make central banks independent from political intervention in their day -to-day operations and allow them to set interest rates. Independent central banks should be able to concentrate on the long-term needs of an economy, whereas political intervention may be guided by the short-term needs of the government. in theory, an independent central bank should reduce the risk of inflation. some central banks are legally required to set interest rates so as to hit an explicit inflation target. Politicians are often tempted to   exploit a possible short -term trade -off between inflation and unemployment, even though the long-term consequence of easing policy in this way is { most economist say } that the unemployment rate returns to what you started with and inflation is higher. An independent central bank, because it does not have to worry about persuading an electorate to vote for it, is more likely to act in the best long run interests of the economy.