Central bank

central bankreserve bank, or monetary authority is an institution that manages the currency and monetary policy of a state or formal monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base. Most central banks also have supervisory and regulatory powers to ensure the stability of member institutions, to prevent bank runs, and to discourage reckless or fraudulent behavior by member banks.

Central banks in most developed nations are institutionally independent from political interference. Still, limited control by the executive and legislative bodies exists.

Activities of central banks

The Eccles Federal Reserve Board Building in Washington, D.C. houses the main offices of the Board of Governors of the United States’ Federal Reserve System

Functions of a central bank usually include:

  • Monetary policy: by setting the official interest rate and controlling the money supply;
  • Financial stability: acting as a government’s banker and as the bankers’ bank (“lender of last resort”);
  • Reserve management: managing a country’s foreign-exchange and gold reserves and government bonds;
  • Banking supervision: regulating and supervising the banking industry;
  • Payments system: managing or supervising means of payments and inter-banking clearing systems;
  • Coins and notes issuance;
  • Other functions of central banks may include economic research, statistical collection, supervision of deposit guarantee schemes, advice to government in financial policy.

Bitcoin

Bitcoin (₿) is a decentralized digital currency that does not have a central bank or a single administrator and may be transmitted from user to user on the peer-to-peer bitcoin network without the use of middlemen. Transactions are confirmed by network nodes using encryption and stored in a blockchain, which is a public distributed ledger. The cryptocurrency was created in 2008 by an unknown individual or group of individuals using the name Satoshi Nakamoto. The currency was first used in 2009, when its implementation was made available as open-source software.

Bitcoins are produced as a reward for participating in a process known as mining. They can be traded for other currencies, goods, and services, but their real-world value is very volatile.

The term “bitcoin” was defined in a white paper issued on October 31, 2008. It is a combination of the terms bit and coin. There is no universal standard for bitcoin capitalization; some publications use Bitcoin, capitalized, to refer to the technology and network, and bitcoin, lowercase, to refer to the unit of account.