A central bank is a financial institution controlling the production and distribution of money and credit for a nation or a group of nations. This institution oversees the financial system’s health in its governing area. During the 1990s, it became a trend to make central banks independent from political intervention, allowing them to set interest rates. This allowed central banks to focus on the long-term needs of the economy. In theory, a central bank reduces inflation risk, but this isn’t always possible. Some central banks are even required to control interest rates to hit specific inflation targets, ensuring that inflation doesn’t get too high or too low.

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