Combined, the world’s 10 most influential Central Banks have a GDP of $55.93 trillion. This represents 75.43% of global GDP.
1, Federal Reserve System
Mandate – Long-term price stability and sustainable growth
Frequency of Meeting – Eight times a year
2. European Central Bank
The European Central Bank (ECB) is the 2nd most influential Central Bank. The European Central Bank (ECB) lowered interest rate to 0% on the 10th March 2016. It has 19 member nations with a total GDP of $11.60 trillion or 15.64% of global GDP.
The 19 nations that follow the ECB interest rates are:
- Slovak Republic
The European Central Bank (ECB) is the central bank of the 19 European Union countries which have adopted the euro. To maintain price stability in the euro area and so preserve the purchasing power of the single currency. The ECB is an official EU institution at the heart of the Eurosystem as well as the Single Supervisory Mechanism for banking supervision. Find out how we are organised and learn who is who in the Governing Council, the main decision-making body.
The European Central Bank was established in 1999. The governing council of the ECB is the group that decides on changes to monetary policy. The council consists of the six members of the executive board of the ECB, plus the governors of all the national central banks from the 12 euro area countries. As a central bank, the ECB does not like surprises. Therefore, whenever it plans on making a change to interest rates, it will generally give the market ample notice by warning of an impending move through comments to the press.
Mandate – Price stability and sustainable growth. However, unlike the Fed, the ECB strives to maintain the annual growth in consumer prices below 2%. As an export dependent economy, the ECB also has a vested interest in preventing against excess strength in its currency because this poses a risk to its export market.
Frequency of Meeting – Bi-weekly, but policy decisions are generally only made at meetings where there is an accompanying press conference, and those happen 11 times a year.
3. People’s Bank of China
People’s Bank of China (PBOC) is the 3rd most influential Central Bank in the world. With a $11 trillion economy that represents 14.83% of global GDP, it last lowered interest rate to 4.35% on the 3rd October 2015.
The People’s Bank of China (PBC) was established on December 1, 1948 based on the consolidation of the Huabei Bank, the Beihai Bank and the Xibei Farmer Bank. In September 1983, the State Council decided to have the PBC function as a central bank. The Law of the People’s Republic of China on the People’s Bank of China adopted on March 18, 1995 by the 3rd Plenum of the 8th National People’s Congress has since legally confirmed the PBC’s central bank status.
With the improvement of the socialist market economic system, the PBC, as a central bank, will play an even more important role in China’s macroeconomic management. The amended Law of the People’s Republic of China on the People’s Bank of China, adopted by the 6th meeting of the Standing Committee of the 10th National People’s Congress on December 27, 2003, provides that the PBC performs the following major functions:
(1) Drafting and enforcing relevant laws, rules and regulations that are related to fulfilling its functions;
(2) Formulating and implementing monetary policy in accordance with law;
(3) Issuing the Renminbi and administering its circulation;
(4) Regulating financial markets, including the inter-bank lending market, the inter-bank bond market, foreign exchange market and gold market;
(5) Preventing and mitigating systemic financial risks to safeguard financial stability;
(6) Maintaining the Renminbi exchange rate at adaptive and equilibrium level; Holding and managing the state foreign exchange and gold reserves;
(7) Managing the State treasury as fiscal agent;
(8) Making payment and settlement rules in collaboration with relevant departments and ensuring normal operation of the payment and settlement systems;
(9) Providing guidance to anti-money laundering work in the financial sector and monitoring money-laundering related suspicious fund movement;
(10) Developing statistics system for the financial industry and responsible for the consolidation of financial statistics as well as the conduct of economic analysis and forecast
(11) Administering credit reporting industry in China and promoting the building up of credit information system;
(12) Participating in international financial activities at the capacity of the central bank;
(13) Engaging in financial business operations in line with relevant rules;
(14) Performing other functions prescribed by the State Council.
4. Bank of Japan
Bank of Japan (BOJ) is the 4th most influential Central Bank in the world. The 3rd largest economy in the world, Japan has a $4.38 trillion economy that represents 5.91% of global GDP. On 2nd January 2016, Bank of Japan set the interest rate at -0.10%, the only Central Bank on this list to have a negative interest rate policy.
The Bank of Japan Act of 1882 is promulgated; the Bank is to have capital of 10 million yen and is given a license to operate for 30 years from the start of business. The Bank of Japan Act of 1942 is promulgated; the Bank is to have capital of 100 million yen. The Bank of Japan Act of 1997 is promulgated; the Bank is to have capital of 100 million yen. The Bank of Japan Act of 1997 comes into effect.
The Bank of Japan’s monetary policy committee consists of the BoJ governor, two deputy governors and six other members. Because Japan is very dependent on exports, the BoJ has an even more active interest than the ECB does in preventing an excessively strong currency. The central bank has been known to come into the open market to artificially weaken its currency by selling it against U.S. dollars and euros. The BoJ is also extremely vocal when it feels concerned about excess currency volatility and strength.
Mandate – To maintain price stability and to ensure stability of the financial system, which makes inflation the central bank’s top focus.
Frequency of Meeting – Once or twice a month
5. Bank of England
Bank of England (BOE) is the 5th most influential Central Bank, and is the Central Bank for United Kingdom (UK). On 4th August 2016, Bank of England adjusted the interest rate to 0.25%. United Kingdom have a $2.85 trillion economy, that represents 3.84% of global GDP.
Founded in 1694, the Bank of England is the central bank of the United Kingdom. Sometimes known as the ‘Old Lady’ of Threadneedle Street, the Bank’s mission is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. The Bank of England is a diverse organisation, made up of approximately 3600 people. The Bank of England is owned by the UK government. Parliament has given us powers through legislation, which means that we are accountable to both Parliament and the public.
The monetary policy committee of the Bank of England is a nine-member committee consisting of a governor, two deputy governors, two executive directors and four outside experts. The BoE, under the leadership of Mervyn King, is frequently touted as one of the most effective central banks.
Mandate – To maintain monetary and financial stability. The BoE’s monetary policy mandate is to keep prices stable and to maintain confidence in the currency. To accomplish this, the central bank has an inflation target of 2%. If prices breach that level, the central bank will look to curb inflation, while a level far below 2% will prompt the central bank to take measures to boost inflation.
Frequency of Meeting – Monthly
6. Reserve Bank of India
Reserve Bank of India (RBI) is the 6th most influential Central Bank in the world. It is the Central Bank for India with a GDP of $2.09 trillion that represents 2.09% of world’s GDP. On 4th October 2016, the Central Bank rate was set at 6.25%, the highest interest rate of the Central Bank’s rate in Asia.
The Reserve Bank of India was set up on April 1, 1935. It is one of the few central banks to document its institutional history. So far, it has brought out four volumes of its history. Volume 1, covering the period from 1935 to 1951, was published in 1970. It details the initiatives taken to put in place a central bank for India and covers the formative years of the Reserve Bank. It highlights the challenges faced by the Reserve Bank and the Government during World War II and the post-independence era.
Volume 4 of the Reserve Bank’s history was released on August 17, 2013. It covers the eventful 16 years from 1981 to 1997 and is published in two parts, Part A and Part B, which ideally should be read in continuum. Part A focusses on the transformation of the Indian economy from a regime of restrictions to progressive liberalisation. The 1980s were characterised by an expansionary fiscal policy accompanied by automatic monetisation of budgetary deficit that strained the conduct of monetary policy. Similarly, a highly regulated banking system impaired efficiency. The domestic macroeconomic imbalances combined with deteriorating external conditions triggered the balance of payments (BoP) crisis of 1991. Subsequent reforms ushered in far reaching changes not only in the economy but also in central banking. Part B of the volume captures the implementation of structural and financial sector reforms: fiscal correction and phasing out of automatic monetisation; development of government securities market; and greater integration among money, securities and foreign exchange markets. It also covers the transformation in banking with liberalisation and improvement in credit delivery. At the same time, the Reserve Bank had to contend with a securities scam which led to the introduction of better control systems and strengthening of the payment and settlement systems.
7. Banco Central do Brasil
Banco Central do Brasil (BCB) is the 7th most influential Central Bank. The Central Bank for Brazil, a country with a $1.77 trillion economy, adjusted the interest on 22nd February 2017 to 12.25%. At 12.25%, it remains the Central Bank with the highest interest rate.
The need for a financial institution to organize the Brazilian monetary system can be traced back to 1694, when the Brazilian Mint was founded. In 1808, when Portugal’s Prince-Regent Dom João VI arrived in colonial Brazil, the idea of creating a bank with the duties of a central and a commercial bank was already underway. The Bank of Brazil was created the same year, in order to cope with this gap. The Bank of Brazil was originally set up with mixed responsibilities. As a Central Bank, it performed the roles of depositary, discount and issuing bank. In addition, it was responsible for selling the exclusive products of the State administration and Royal contracts. This dual role performed by the Bank of Brazil is seen as one of the factors that explains why it took so long before a true Central Bank was established.
After a few years, it became apparent that it was necessary to develop a system that would enable the country to keep up with the world’s economic and financial development. However, there was no institution to control the money supply up to 1945. All duties of monetary authority were carried out by the Bank of Brazil. Mr. Getúlio Vargas, the President at that time, issued Decree 7,293 establishing the Superintendency for the Currency and Credit – SUMOC. This institution was assigned the task of controlling the disorganized financial market, fighting inflation, as well as preparing the establishment of a Central Bank.
8. Bank of Canada
Bank of Canada (BOC) is the 8th most influential Central Bank in the world. It is the Central Bank for Canada, a country with a $1.55 trillion economy that represents 2.09% of global GDP.
The Great Depression, fuelled by drought conditions and a worldwide economic slump, contributed to a change in government and unprecedented public criticism of Canada’s banking system. It also coincided with Prime Minister R.B. Bennett’s concern that Canada lacked a direct means for settling international accounts. In 1933, he set up a Royal Commission to study “the organization and working of our entire banking and monetary system [and] to consider the arguments for or against a central banking institution.”
Soon after the Bank opened, a new government introduced an amendment to the Bank of Canada Act to nationalize the institution. In 1938, the Bank became publicly owned and remains so today. The Bank of Canada Act, which defines the Bank’s functions, has been amended many times since 1934. But the preamble to the Act has not changed. The Bank still exists “to regulate credit and currency in the best interests of the economic life of the nation.”
Monetary policy decisions within the Bank of Canada are made by a consensus vote by Governing Council, which consists of the Bank of Canada governor, the senior deputy governor and four deputy governors.
Mandate – Maintaining the integrity and value of the currency. The central bank has an inflation target of 1-3%, and it has done a good job of keeping inflation within that band since 1998.
Frequency of Meeting – Eight times a year
9. Bank of Russia
Central Bank of Russia (CBR) is the 9th most influential Central Bank in the world. Russia has an economy of $1.33 trillion that represents 1.79% of world’s GDP.
The Central Bank of the Russian Federation also known as the Bank of Russia is the central bank of the Russian Federation, founded in 1860 as The State Bank of the Russian Empire, headquartered on Neglinnaya Street in Moscow. Its functions are described in the Russian constitution (Article 75) and in the special Federal Law.
Article 75 of the Constitution of the Russian Federation establishes a special legal status of the Bank of Russia, gives it the exclusive right to issue currency (Part 1) and protect the ruble and ensure its stability, which is the main function of the Bank of Russia (Part 2). The status, purposes, functions and powers of the Bank of Russia are also spelled out in Federal Law No. 86-FZ, dated July 10, 2002, ‘On the Central Bank of the Russian Federation (Bank of Russia)’, and other federal laws.
According to Article 3 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’, the goals of the Bank of Russia are to protect the ruble and ensure its stability, promote the development and strengthen the Russian banking system, ensure the stability and development of the national payment system, develop the financial market of the Russian Federation and ensure its stability.
10. Reserve Bank of Australia
Reserve Bank of Australia (RBA) is the 10th most influential Central Bank. It is the Central Bank for Australia, with a $1.33 trillion economy that represents 1.79% of global economy.
The Reserve Bank of Australia (RBA) is Australia’s central bank and derives its functions and powers from the Reserve Bank Act 1959. Its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by setting the cash rate to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system, and issuing the nation’s banknotes. The RBA provides certain banking services as required to the Australian Government and its agencies, and to a number of overseas central banks and official institutions. Additionally, it manages Australia’s gold and foreign exchange reserves.
In 1911, legislation established the Commonwealth Bank of Australia. In 1959, this original body corporate was preserved as the Reserve Bank of Australia (RBA) in legislation, specifically to carry on the central banking functions; at that same time, the commercial and savings banking functions were transferred into a new institution, which carried on the old name of Commonwealth Bank of Australia. The Reserve Bank of Australia’s monetary policy committee consists of the central bank governor, the deputy governor, the secretary to the treasurer and six independent members appointed by the government.
Mandate – To ensure stability of currency, maintenance of full employment and economic prosperity and welfare of the people of Australia. The central bank has an inflation target of 2-3% per year.
Frequency of Meeting – Eleven times a year, usually on the first Tuesday of each month (with the exception of January)