Discuss the key roles of the central bank in an economy. Should Essay

Discuss the key roles of the central bank in an economy. Should central banks be independent - Essay Example The institution, which is the chief regulator, is called the central bank. The 17th century money was dominated by gold and silver, with verbal and written promises also being a form of payment. Paper money and attempts to control money flow were first used in China. European form of central banks came in existence in form of Knights Templar’s promises of payment. The modern precursor of central bank was the bank of Sweden, the Sveriges Riksbank, which acted as the source of funding for government operations and was answerable to the political leadership. Modern central banks operate on the model created by Charles Montagu, which operated in the Bank of England. Montagu’s model operated on the subscription of people to the government’s loan, which would guarantee the subscribers incorporation as attracted certain privileges like banking notes. Central banks evolved with increasing public outlook and monetary functions to be what they are today. Central banks operate on the cumulative process that creates quantity theory. This theory wa s developed by Henry Thornton, to explain the England’s monetary crisis of 1797, with reference to the bank withholding withdrawal of notes from the bank (Rosaveare 34). The Bank Charter of 1844 gave the Bank of England the monopoly over issuance of banknotes and the reserves which any financial institution should have in the bank before issuing a certain value of banknotes (â€Å"The Bank† n.pag).19th century witnessed the spread and growth of central banks spread in many European countries. The Banque de France was established in 1800, the U.S. Federal Reserve in 1923, Australia, Mexico, Chile and Colombia established in 1920, 1925 and 1923 respectively. Prior to the Great Depression, only a few countries like New Zealand, China and Brazil had not established central banks. All central banks are government owned entities. The central banks