THE ROLE OF CENTRAL BANKS IN MODERN ECONOMIES

Abstract

Central banks play a key role in modern economies by regulating money supply, controlling inflation, and ensuring financial stability. Their objectives and tools have evolved due to economic development, globalization, and crises. This paper analyzes theoretical views on central banking and key functions such as interest rate control, money supply management, foreign exchange reserves, and the lender of last resort role. It emphasizes price stability as the main goal of monetary policy and compares approaches like monetary targeting, exchange rate targeting, and inflation targeting, highlighting the latter as the most widely used. The study also examines central banks’ responses to economic shocks, especially during the COVID-19 pandemic. It concludes that central banks remain essential for economic stability, with effective policy and clear objectives being critical for sustainable development