Central Bank: Definition, Functions and Tasks

Nurmyrat Mommayev
Central Bank: Definition, Functions and Tasks
The Central Bank of Turkmenistan

When people hear the words "central bank", they associate it with the concept of "the center of all banks". And what is a central bank? And what are its tasks?

The Central Bank is the government agency responsible for monetary policy and the coordination of the payment system, as well as, in some cases, the regulation and control of the national economy and financial sector in the countries of the union (European Union). In other words, the central bank is the authorized agency in the field of money. But unlike cash, the central bank uses reserves. To understand reserves, it is first necessary to understand what “money” is.

Money has three features, the first of which is its use for buying and selling (barter). Second, money is used to store value and wealth. The third feature of money is its mobility. In other words, it is easier to carry money with you than goods or property. Thus, reserves are based on money. But reserves have one special difference from money: reserves cannot be used to buy or sell goods. Reserves are the key to the circulation of money.

The first and most important task of the central bank is to make decisions in favor of the public interest. In addition, the central bank has a number of other important functions:

  • price stability;
  • promotion of balanced economic growth;
  • maintaining a stable exchange rate;
  • financial stability.

The main task or tasks of the central bank are reflected in the legislation or the charter of the central bank and distributed to the public.

The central bank is an independent institution. Thus, according to Article 19 of the Law of Turkmenistan on the Central Bank of Turkmenistan, the Central Bank of Turkmenistan is also an independent institution. The Law also defines the goals and objectives of the Central Bank.

1. The objectives of the Central Bank of Turkmenistan are:

1.1. ensuring the sustainability of the manat;

1.2. development and strengthening of the banking system of Turkmenistan.

2. Making a profit is not the goal of the activities of the Central Bank of Turkmenistan.

3. The main tasks of the Central Bank of Turkmenistan are:

3.1. creation of the necessary legal conditions and guarantees for the functioning of the banking system of Turkmenistan;

3.2. implementation of an effective unified state monetary policy;

3.3. organization of cash circulation;

3.4. ensuring the effective functioning of the settlement and payment system;

3.5. organization of banking regulation and banking supervision;

3.6. maintaining price stability;

3.7. protecting the interests of creditors and depositors of credit institutions;

3.8. countering the legalization of proceeds from crime and the financing of terrorism in accordance with the legislation of Turkmenistan;

3.9. ensuring effective management of international reserves (gold and foreign exchange assets) of Turkmenistan, including the reserve gold reserves of the state.

Nurmyrat Mommayev,

PhD Candidate at Marmara University's Department of Political Science and International Relations in Istanbul, Turkey