Chapter 26, Problem 7MCQ

To determine

The correct option regarding the function of central banks.

Explanation of Solution

A financial institution with exclusive authority over the creation and transmission of currency and loans for a country or a collection of countries is known as the central bank. In modern governments, the central bank is typically in charge of monetary policy setting and member bank oversight.

The very nature of central banks makes them non-market and even anti-competitive organizations. Despite some being nationalized, many central banks are not part of the government and are, therefore, frequently hailed as being politically impartial. A central bank's rights are still created and safeguarded by law even though it is not the government's property.

The crucial characteristic that sets a central bank apart from other banks is its statutory monopoly position, which grants it the right to print money and banknotes. Limited demand liabilities, like checking deposits, may be issued by private commercial banks.