The central bank acts as banker to the commercial banks in a country and is responsible for setting interest rates. In the UK, the Bank of England fulfils these roles. Two key tasks: –to issue coins and bank-notes –to act as banker to the banking system and the government. The Bank and the money supply +Three ways in which the central bank MAY influence money supply: –Reserve requirements central bank sets a minimum ratio of cash reserves to deposits that commercial banks must meet –Discount rate the interest rate that the central bank charges when the commercial banks want to borrow setting this at a penalty rate may encourage commercial banks to hold more excess reserves –Open market operations actions to alter the monetary base by buying or selling financial securities in the open market