What is the primary role of central banks?

The primary role of central banks is to manage currency, money supply, and interest rates, which is crucial for maintaining economic stability. Central banks are responsible for formulating and implementing monetary policy, which influences how much money is circulating in the economy and the cost of borrowing money (interest rates). By adjusting the money supply and interest rates, they can help control inflation, stabilize the currency, and foster conditions conducive to economic growth.

Central banks also serve as a lender of last resort to financial institutions and play a key role in overseeing and regulating the banking system to ensure its stability. Their actions directly impact overall economic performance and consumer confidence.

On the other hand, setting tax rates is typically a function of government Fiscal policy and not directly managed by central banks. Similarly, regulating the size of government spending and deciding on trade tariffs fall under the purview of government policy and economic planning, rather than the central bank’s primary responsibilities.