Central bank
Although officially state owned in most countries, the central bank is usually an autonomous entity responsible for the stability of the national currency (see also money) and the national financial system as a whole. Furthermore it implements the country's monetary policy, which may conflict with the government's fiscal measures. Other duties might include providing financial services to governments (eg. storing other countries' monetary reserves) and supervising of banking institutions (eg. in the case of mergers and acquisitions) in order to protect the consumers.
A central bank is a privately held refinancing bank of last resort, thus a monetary monopoly. Advocates of central banking argue that a National bank, which is chartered by the government and carries out government-designated monetary policy, is too susceptible to political pressure, which may come from factions that are incompetent to make monetary policy. Hence the expression, "the independence of the Federal Reserve," the U.S. Federal Reserve Bank being an example of a Central, as opposed to National, bank.
Central banks are often said to be more powerful than governments, although generally governments have some leverage over them. The chairman of the U.S. Federal Reserve Bank, for example, is appointed by the President of the U.S., and his choice must be confirmed by the Congress. Central banks of various nations often deliberate jointly on monetary policy, and the combined power of central bank leaders is extraordinary. The founder of Australia's Reserve Bank, H.C. "Nugget" Coombs, once bragged he belonged to the "international freemasonry of central bankers".
Central banks are part of the infastructure used by the private banking community of a given country, to influence their country's economy. Central banks in different countries have a range of influence over exchange rates. Some exchange rates are managed, some are market based and many are somewhere in between. Typically a central bank seeks to impose centralised control over market prices such as the price of credit. This is called interest rate policy.
Central banks influence interest rates through a policy lever called open market operations.
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