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policy

Central Banks: What Do They Do?

By Asatullayeva Nodira

Published 18 February 2026 • 3 min read

When you think about a bank, perhaps the first thing that pops into your mind is the place where you manage your finances through services and products like deposits and loans. However, there is a financial institution that doesn't have a commercial focus, but that plays a key role in the economy, and that is also called a bank: a central bank. History of the first central bank. Well, many people think that the world’s first central bank originated in England. However, it appears that it was originally founded in Sweden by the proposal of Swedish Chancellor Axel Oxenstierna. They cancelled it before, because of the lack of support both from the Crown and the residents. The only reason why they rejected the offer was that many people didn't believe that this kind of system would work efficiently and judged it as unprofitable. But it didn't take long enough to make residents regret their beliefs about the working system of the bank. In 1624, Sweden introduced the copper standard. They used copper as their main metal for coins to replace silver coins since copper was Sweden’s most desired export of the time. This standard worked well at first; people were happy to get more metal rather than just a tiny amount of silver. But because copper is worth less than silver, large plates of copper were needed to replace even small silver coins as the need for silver rose where the silver lacked continually. There were even the largest copper coins, weighing almost 20 kilograms, making it impractical to carry around!

The copper standard money, weighing almost 20kg, Economy Museum, Royal Coin Cabinet. Credit: Jens Mohr, National Historical Museums of Sweden.

Then, in 1660, the government started to do something new to solve this case. They started to mint new, lighter coins by making them comfortable to carry or keep. Many customers wanted their old copper plates back for their metal value, but since they all came knocking at the same time to get their money back, a run on the bank ensued. However, the problem was solved by financier Johan Palmstruch, who came up with an ingenious solution in 1661. To counteract the impending bank run, his bank, ‘Stockholms Banco’, started to issue deposit certificates called ‘Credityf.’ These paper certificates entitled the owner to the value in coins if redeemed, but also meant the bank could lend money without necessarily having it deposited. So that's how Credityf became the first \ European banknote, making a huge innovation in the Banking system. photo An early example of a Bank of England banknote, known as a running cash note, from 1697. Bank of England Museum: “Credityf” So what do central banks do? They are responsible for implementing monetary policy, managing the currency of a country or group of countries, and controlling the money supply. They control monetary policy by setting interest rates to fight inflation or support economic growth, regulate how much money circulates in the economy, and issue national currency. Central banks also oversee the banking system and payment networks to ensure they function properly, provide emergency loans to commercial banks when needed to prevent financial crises, manage foreign reserves and exchange rate stability, and offer economic research and advice. Importantly, they operate independently from day-to-day politics, so they can focus on maintaining price stability and overall economic confidence.