Central Banking Principles and Functions

Flashcards covering key concepts related to central banking, monetary policy, and the European Central Bank.

Central Banking

The financial institution responsible for supervising a country's monetary system and conducting monetary policy to achieve non-inflationary growth.

Bank of England

A central bank that has developed functions since the 19th century, including financial stability and being a lender of last resort.

Currency Issuance

The monopolistic power held by central banks to issue legal currency, which is not always exclusive.

Deficit Monetization

A practice where a government finances its deficits by having the central bank purchase government securities directly.

Exchange Rate Stability

An objective of the European Exchange Rate Mechanism (ERM II), aimed at stabilizing exchange rates between EU currencies and the euro.

Quantitative Easing (QE)

A monetary policy where the central bank purchases government securities to increase the money supply and encourage lending.

Interest Rates

They play a crucial role in the economic relationship between money supply, credit availability, asset prices, and exchange rates.

Monetary Policy Operations

Actions undertaken by central banks to control the money supply and interest rates, including open market operations and minimum reserves.

Securities Markets Program (SMP)

A monetary policy measure by central banks aimed at maintaining stability in the financial markets.

Maastricht Criteria

Economic and legal convergence criteria that EU member states must meet to adopt the euro, including limits on inflation, public debt, and budget deficits.