Central banks are the institutions responsible for managing a country's currency, money supply, and

interest rates. They play a crucial role in maintaining economic stability and implementing monetary
policy.

Here's what central banks typically do:

1. Monetary Policy, Central banks set monetary policy to achieve macroeconomic objectives
such as price stability, full employment, and stable economic growth. They use tools like
interest rate adjustments, open market operations (buying and selling government
securities), and reserve requirements to influence the money supply and credit conditions.

2. Currency Issuance and Management, Central banks issue currency and manage its
circulation to ensure its integrity and stability. They also regulate and oversee the banking
system to maintain confidence in the currency.

3. Banker to the Government, Central banks often act as bankers to the government, managing
its accounts, facilitating transactions, and sometimes directly financing government spending
through purchases of government securities.

4. Financial Stability, Central banks monitor and regulate financial institutions to promote a
stable financial system. They set prudential regulations, conduct stress tests, and intervene
when necessary to prevent financial crises.

5. Foreign Exchange Reserves Management, Central banks manage a country's foreign

exchange reserves to support the stability of the domestic currency and facilitate
international trade.

6. Payment Systems Oversight, Central banks oversee payment and settlement systems to
ensure the smooth functioning of financial transactions.

I Agree As for whether every country must have a central bank, there's a strong argument in favor of
it. Here's why:

1. Monetary Policy

Without a central bank, there would be no centralized authority to implement monetary

policy. This could lead to instability in interest rates, inflation, and economic growth.

2. Financial Stability

Central banks play a crucial role in maintaining financial stability. They provide lender of last
resort support to banks in times of crisis, helping prevent banking panics and systemic
collapses.

3. Currency Issuance and Management

Centralized control over currency issuance ensures confidence in the currency. Without a
central bank, there's a risk of unregulated currency issuance leading to inflation or even
currency collapse.

4. Regulation and Oversight

Central banks regulate and supervise banks and financial institutions to prevent excessive
risk-taking and maintain the stability of the financial system. Without this oversight, there's a
higher risk of financial crises and economic instability.
 5. International Trade and Relations

A central bank helps manage a country's international reserves and exchange rates, which
are vital for international trade and economic relations.

However, the exact structure and functions of central banks can vary from country to country based
on economic and political factors. Some smaller countries may choose to use a common currency or
outsource monetary policy to a larger central bank, like the Eurozone countries with the European
Central Bank. Ultimately, the necessity of a central bank depends on a country's specific
circumstances and economic needs.

References :

REEM HEAKAL,(July 25 2023) “What Central Banks Do” https://www.investopedia.com

(articles/03/050703)
Santander(02/01/2023)” What are central banks and why are they so important?”
https://www.santander.com