What is a central bank?
In one line: A central bank is the institution that manages a country's money, sets its key interest rate and works to keep prices and the financial system stable.
The big ones
| Central bank | Currency | Short name |
|---|---|---|
| Federal Reserve | US dollar | Fed |
| European Central Bank | Euro | ECB |
| Bank of England | British pound | BoE |
| Bank of Japan | Japanese yen | BoJ |
| Swiss National Bank | Swiss franc | SNB |
| Reserve Bank of Australia | Australian dollar | RBA |
| Bank of Canada | Canadian dollar | BoC |
| Reserve Bank of New Zealand | New Zealand dollar | RBNZ |
What a central bank does
- Sets the key interest rate. This guides what banks charge each other, and ripples out to mortgages, loans and savings.
- Fights Inflation. Most aim for about 2% a year.
- Supports jobs. The Fed has two goals by law: stable prices and maximum employment.
- Steps in during a crisis. For example, by buying bonds, called Quantitative easing.
In the US, rate decisions come from the Federal Open Market Committee (FOMC), which meets 8 times a year. The statement comes out at 2:00 pm ET, with a press conference at 2:30 pm. See the FOMC meeting guide and the Fed's own site, federalreserve.gov.
A simple example
Say markets expect the Bank of Canada to hold rates. Instead it cuts by 0.25%. Lower rates make the Canadian dollar a little less attractive to hold, so the CAD often weakens. On a chart of USD/CAD, that shows up as price jumping up, because the CAD is the second currency.
If the cut was fully expected, the move might be tiny. Surprise is what moves price.
Why it matters
Interest rates are the price of money. When they change, the value of currencies, bonds, stocks and gold all shift. Our guide on how interest rates affect stocks shows the chain step by step.
A common mistake
Watching only the decision. Often the rate change is already expected. The bigger move can come from the words: hints about future moves in the statement or press conference. Traders call those hints Hawkish and dovish.
Questions
Is the Federal Reserve part of the government?
It was created by Congress and answers to it, but it makes interest rate decisions independently, without needing approval from the President or Congress.
How often do central banks change rates?
They meet on a set schedule, 8 times a year for the Fed, and change rates only when they decide it's needed. Many meetings end with no change.
Want the next step? We'll walk you through it.
Four free lessons by email, one every few days — each with a 10-minute exercise on a real chart.
Send Me the Free Lessons 4 short emails · No spam · Unsubscribe anytimeOr see the whole method, step by step:
See What’s Inside the Course Try everything free first. Decide when you're ready. · Open the free chart tool (works in the TradingView phone app)One chart idea a day, in plain English. Follow along: