Central Bank

The central bank in each currency area (e.g. the US or the eurozone) essentially acts as the “bank for the banks”. For example, JP Morgan Chase will deposit funds with the US Federal Reserve. Thanks to this relationship, the central bank can set the “target interest rate” – which is the interest rate that other interest rates are based on. When the target interest rate is low, banks can then offer loans to people and companies at low interest rates – one major way in which the central bank affects the economy.