Glossary · Money and central banks
Central bank
A central bank is a country’s official bank: it issues the money, sets the key interest rate and lends to banks when nobody else will.
Also called: national bank, reserve bank, monetary authority, bank of banks
Median of the latest rates in the BIS table, Oct 2026
Türkiye
Switzerland
In plain words
Your bank keeps your money and lends some of it to people buying cars and houses. But where does your bank keep its money, and who lends to it in a pinch? A bank one level up: the central bank. Every country, or group of countries sharing a currency, has one: the Federal Reserve in the US, the European Central Bank for the euro, the Bank of England, the Bank of Japan.
A central bank has a few big jobs. It issues the banknotes in your wallet. It sets the country’s key interest rate, which nudges every other rate up or down. It keeps the banks’ own accounts and settles payments between them. And when panic strikes, it is the lender of last resort: it lends to sound banks so that a scare does not turn into a bank run.
Its main goal is usually stable prices: inflation low and predictable, often about 2% a year. Unlike your bank it is not out to make a profit, and in most countries it decides on its own, without the government telling it what to do from day to day.
Example
The lender of last resort at work
A bank can be healthy and still run short of cash, because its money is lent out for years while deposits can leave in a day.
- A bank holds $100 million of deposits: $10 million in cash and reserves, $90 million lent out as mortgages and business loans.
- A rumor spreads, and customers ask for $25 million on the same day. The bank has only $10 million at hand, and loans cannot be called back overnight.
- The bank pledges $30 million of its best loans to the central bank as collateral and borrows $15 million for a few days, at a rate a little above the usual one.
- Every customer who asks is paid. The rumor dies down, and the bank repays the central bank.
Lend freely to sound banks, against good collateral, at a penalty rate: the rule Walter Bagehot wrote down in 1873 is still how central banks stop panics.
One level deeper
The oldest central bank still working is Sweden’s Riksbank, founded in 1668; the Bank of England followed in 1694. The US Federal Reserve came in 1913 and the European Central Bank in 1998, just before the euro was born. Even central banks have a bank: the Bank for International Settlements (BIS) in Basel, which also collects the key rates of central banks around the world, the data behind the chart below.
Its tools: the key rate (what banks earn on money parked with it, or pay to borrow from it); buying and selling bonds, called open market operations, and on a huge scale quantitative easing; and rules on how much cash banks must keep at hand. Together they make up monetary policy.
Why independent? Politicians facing an election are tempted to keep rates low and money flowing, which feeds inflation later. So most countries hand rate decisions to central bankers with a clear goal, such as an inflation target, and long terms in office. The government sets the goal and appoints the people; the central bank chooses how to reach it.
Key interest rates around the world
The latest key rate set by the central banks of 16 large economies. Rates differ so much because inflation does: a central bank fighting fast-rising prices sets a high rate, one whose prices barely move sets a low one.
Across all 38 central banks in the BIS table, the middle rate is 4.25% (Oct 2026).
The numbers behind the chart
| Value | |
|---|---|
| Türkiye | 36.00% |
| Russia | 14.00% |
| Brazil | 13.75% |
| South Africa | 7.25% |
| Mexico | 6.50% |
| India | 5.25% |
| Australia | 4.60% |
| United States | 3.88% |
| United Kingdom | 3.75% |
| China | 3.00% |
| Korea | 3.00% |
| Euro area | 2.50% |
| Canada | 2.50% |
| Sweden | 1.75% |
| Japan | 1.25% |
| Switzerland | 0.00% |
Why it matters
The central bank’s key rate sets the tone for every loan in the country, from mortgages to credit cards, and for what savings accounts pay.
It is the guardian of the currency’s value: when a central bank loses control of prices, savings melt, as in every hyperinflation.
In a crisis it is the last line of defense. In 2008 and 2020 central banks lent to banks and bought assets when private lenders ran away.
A common mistake
Myth: The central bank is part of the government and spends money on its behalf.
In fact: Central banks are usually separate from the government, and they do not pay for roads or pensions: taxes and government borrowing do, which is fiscal policy. A central bank sets interest rates and manages money, and in the US and the euro area it is not allowed to lend to the government directly.
Questions people ask
What does a central bank do?
It issues the currency, sets the key interest rate to keep inflation in check, holds the banks’ reserves and settles payments between them, and lends to banks in a panic. Many central banks also supervise banks.
Which central bank has the highest interest rate?
Among the 38 central banks in the BIS table, the highest key rate in Oct 2026 was Türkiye’s 36.00%. The lowest was Switzerland’s 0.00%.
Is the Federal Reserve a central bank?
Yes: it is the central bank of the United States, set up in 1913. It is a system of a Board in Washington and 12 regional Reserve Banks, and its key rate is the federal funds rate.
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About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- Central bank policy rates, monthly (end of period): Bank for International Settlements (BIS), Central bank policy rates (WS_CBPOL), compiled by the BIS from each central bank; BIS SDMX API stats.bis.org/api/v1.
- Some central banks in the BIS table report with a delay; each one’s latest month is used, and banks that stopped reporting (such as those that joined the euro) are left out.
- This page explains a term. It is not investment advice.