central bank

A central bank is an institution that manages a country's money supply and monetary policy. Central banks have the authority to create money, set interest rates, and act as a lender of last resort to commercial banks during periods of financial stress. The Federal Reserve in the United States, the European Central Bank, and the Bank of Japan are examples of major central banks. Most modern currencies, including the US dollar and the euro, are issued and regulated by central banks, and their supply can be expanded through decisions made by those institutions.

Central banks use several tools to pursue their mandates, which typically include managing inflation, maintaining employment levels, and supporting financial stability. By raising or lowering interest rates, a central bank influences borrowing costs throughout the economy, affecting spending, investment, and the rate at which money moves through the system. Central banks can also expand the money supply directly through asset purchase programmes, sometimes called quantitative easing, by purchasing government bonds or other assets in exchange for newly created money.

Bitcoin operates without a central bank or any monetary authority. Its supply is determined by code: a protocol that caps the total number of bitcoins at 21 million and defines a fixed schedule for how new coins enter circulation. No institution can alter Bitcoin's monetary policy or issue additional coins. This architectural difference is frequently cited in discussions comparing Bitcoin with government-issued currencies. How individuals evaluate this difference depends on their views about the appropriate role of monetary policy in an economy.