What is a central bank?

A central bank is bank with the monopoly right to create the money used in its region and set the interest rate. Governments use central banks to take wealth from citizens. When a central bank creates new money, the value of the money comes from all other money in circulation. It’s like stock fraud or counterfeiting. Many defend this practice as means to energize the economy, fund government programs, or fight a war. A central bank like a central car rental company is unnecessary and usually harmful.

A central bank can be a private bank, a government-owned bank, or a hybrid. With the power to create money, it can then create money and lend it to its patron government and to other banks. Banks get a cheap source of money that can be lent at a higher interest rate.

A central bank sets the interest rate by specifying the price to rent money from the central bank by other banks and the price banks pay to borrow money from each other.

Central banks cause inflation, which is an increase in the quantity of money. Many banks target a two percent or more increase in prices per year. This is done by estimating how much prices will decrease, such as five percent, then creating enough new money to take seven percent of the value of all existing currency, to get a two percent increase.

With control of the interest rate and the quantity of money, a central bank could manipulate the economy. Malevolent people could use this power to energize the economy, then crash it, while selling stock before the crash and buying it back after the crash for half the price or less. This does not necessarily occur, but it can.

 

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