Central Bank
Plain definition
The government institution that controls a country's money supply, sets baseline interest rates, and oversees the banking system (e.g., the Federal Reserve, the European Central Bank).
In economics
Central banks pursue mandates like price stability and full employment using monetary policy tools: setting policy interest rates, reserve requirements, and conducting open market operations. As lender of last resort, they also stabilize the financial system during crises.
Example
When inflation runs hot, a central bank raises its policy rate, making borrowing costlier across the economy. Mortgages, car loans, and business credit all become more expensive, cooling spending and easing price pressure.
A central bank is confused with a commercial bank. Commercial banks take deposits and make loans to customers; the central bank issues currency, holds banks' reserves, and sets policy. Central banks do not compete with commercial banks for retail business.