4.4.3 - role of central banks

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5 Terms

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4 key functions of central banks

implementation of monetary policy (covered in theme 2)

banker to the government

banker to the banks

regulation of the banking industry

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banker to the government

manages tax receipts + outgoing payments for the government

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banker to the banks

lend to commercial banks if they run short on cash - stop them going bankrupt bc this leads to instability

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regulation of the banking industry

protect consumers + maintain stability

example = required reserve ratios

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explain required reserve ratios

commercial banks to hold back a % of money deposited with them (can’t lend it all out)

stops them running out if ppl want their money back