Role of the Central Banks

There is a lot to understand about the world of banking and how it affects the global markets. Global markets affect the US markets.  We will take this one step at a time.

First of all, what is a Central Bank?

The Central Bank is an institution that provides financial and banking services for its country’s government and commercial banking system.  The primary function of a Central Bank is to control the nation’s monetary supply by managing interest rates, setting the reserve requirements, and acting as a lender during times of bank insolvency or financial crisis. Central banks in most nations are institutionally designed to be independent of political interference.

Let’s look at the major Central Banks and their chairpersons or governors so that we get an idea of the banking players.

1. USA – Federal Reserve (FED)
   The Federal Open Markets Committee (FOMC) is a committee of ten members who meet eight times a year to discuss the US monetary policy.  The current chairman is Janet Yellen.
2. England – Bank of England (BOE)
   The BOE is comprised of a committee of 9 members with Mark Carney as the current governor. This committee meets once a month to discuss any policy changes for England.
3.  Canada – Bank of Canada (BOC)
   The Bank of Canada has a committee known as the governing council who meets eight times a year for monetary policy decisions in Canada.  Stephen Poloz is the current Governor of the BOC.
4. Japan -Bank of Japan (BOJ)
   The BOJ is comprised of a committee of 8 members who meet once or twice a month to discuss monetary policy. Haruhiko Kuroda is the current Governor.
5. Switzerland – Swiss National Bank (SNB)
   The SNB has a small committee of three people who meet quarterly to review monetary policy. Thomas Jordan is the current Chairman.
6. Europe – European Central Bank (ECB)
   The ECB is comprised of a Governing Council with Mario Draghi as the current  President of the ECB.  They meet twice a week but only change policy at 11 of these meetings. The Euro is comprised of 24 different countries under one monetary system.
7. Australia – Reserve Bank of Australia(RBA)
   The RBA has a monetary policy committee that meets eleven times a year.  Glen Stevens is the Governor of the RBA.
8. New Zealand – Reserve Bank of New Zealand (RBN)
   All of the power of monetary policy rests in the hands of one individual who passes decisions about eight times a year.  Grant Spencer is the current Governor of RBN.

Now you know who the players are and might wonder why this is important.

When monetary policy changes in one of these major countries, global investors move their investments to get the highest yield.

As an example, the US Fed raises the commercial interest rates which means that global investors can get a greater return on their money at the US  banks.  When the SNB lowers their interest rates, investors go to other financial instruments for a better yield. WealthbuildersHQ