What is central bank money?

📘 Briefly Explained Central bank money is the money that commercial banks and the state hold directly at the central bank. It consists of cash, i.e. banknotes and coins, which the central bank issues, as well as the balances that commercial banks hold in their accounts at the central bank. These balances are also called reserves or central bank balances. Unlike the money in normal bank accounts, central bank money cannot be held directly by private individuals or companies, but only by banks and government agencies. Central bank money forms the foundation of the entire monetary system because commercial banks need it to settle payments among themselves and to meet the statutory minimum reserves. The central bank controls the amount of central bank money in order to steer monetary policy and ensure price stability. 🔍 Why This Matters Central bank money is the money created by a central bank that only banks and government …