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The Independent Sectors: II. The Central Bank

In: National Monetary and Financial Analysis

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  • Graeme S. Dorrance

Abstract

Central banks are independent parts of the financial system and many aspects of financial analysis are studies of the relation between the financial system and the rest of the economy. A central bank is a clear example of an institution that should be separately identified in a system of financial analysis. It is a true intermediary in that it trades liabilities—almost exclusively reserve money1—for assets that are distinctly different from its liabilities. However, reserve money is a complex. Part of it—the currency held by the primary economic sectors (and non-residents)—is the most liquid asset in the community and, in production of this element, the central bank is an intermediator vis-à-vis the primary sectors of the economy. Another part of it—currency held by financial institutions and deposits of financial institutions with the central bank—is usually the most important reserve asset held by these institutions. In addition, the central bank is a conduit for the financing of the government’s requirements.

Suggested Citation

  • Graeme S. Dorrance, 1978. "The Independent Sectors: II. The Central Bank," Palgrave Macmillan Books, in: National Monetary and Financial Analysis, chapter 11, pages 137-139, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-15858-4_12
    DOI: 10.1007/978-1-349-15858-4_12
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