Controlling interest rates

Central banks control interest rates in an economy to manage inflation risks, stabilize the local currency and foster economic growth. Recently, the Bank of Japan increased interest rates after nearly 15 years of near zero rates to tame inflationary pressures and defend the struggling Japanese Yen.

Local and international currency management

Central banks can buy or sell their own currency against foreign currencies to influence the exchange rate. For instance, if a currency is depreciating rapidly, a central bank might use its FX reserves to buy its own currency, thereby increasing its value.

A central bank with larger FX reserves would be more able to defend its local currency against market fluctuations. Here is a look at the African countries with the largest FX reserves.

FX Reserves by African Countries

Supervisory function

Central Banks ensure that commercial banks operate safely and soundly given their economic importance, particularly in markets that may have less stringent regulatory environments. Central Banks also oversee and improve payment and settlement systems to facilitate economic transactions.