What is the Role of Central Bank in Economy?

The economy of a country consists of many areas which collectively work to make the economy work. The role of central banks is impossible to ignore. The central bank is an important aspect of the economy that has a variety of roles to play. Central banks are called the backbone of the economy and that is why many of the developed countries are experiencing prosperity due to the reason that their central banks are working efficiently.

The role of central banks can be divided into two types of functions; Roles of the central bank at the micro and macro level. In the language of economics, these two fields are divided as macro-economic and micro-economics.

At the micro level, central banks help the commercial banks during a declining supply of money to the clients. When commercial banks fail to service the money to the people, central bank intervenes. In order to borrow additional funds, commercial banks seek funds from the central bank.

In macro-economic concerns, the central bank is responsible for the money supplies in the economy through monetary policy. Through open market transactions, the central bank either injects funds into the economy or absorbs the extra funds from the economy that influences the inflation rates as well. The central bank buys government bonds, bills, or other government-issued notes in order to increase the amount of money circulation and decrease the interest rate.

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