What is a Central Bank?

What is a Central Bank?

A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on printing the national currency, which usually serves as the nation’s legal tender. Examples include the European Central Bank (ECB), the Federal Reserve of the United States, and the People’s Bank of China.

The primary function of a central bank is to provide the nation’s money supply, but more active duties include controlling interest rates (ie. price fixing), and acting as a lender of last resort to the banking sector during times of financial crisis (eg. bailouts). It may also have supervisory powers, intended to prevent banks and other financial institutions from reckless or fraudulent behaviour. Central banks in most developed nations are independent (ie. private) in that they operate under rules designed to render them free from political (ie. democratic) interference.

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What Is Biflation?

What Is Biflation?

Biflation (sometimes mixflation) is a state of the economy where the processes of inflation and deflation occur simultaneously. During Biflation, there’s a rise in the price of commodity/earnings-based assets (inflation) and a simultaneous fall in the price of debt-based assets (deflation).

On the one hand, the economy is fueled by an over-abundance of money injected into the economy by central banks. Since most essential commodity-based assets (food, energy, clothing) remain in high demand, the price for them rises due to the increased volume of money chasing them. The increasing costs to purchase these essential assets is the price-inflationary arm of Biflation.

On the other hand, the economy is tempered by increasing unemployment and decreasing purchasing power. As a result, a greater amount of money is directed toward buying essential items and directed away from buying non-essential items. Debt-based assets (mega-houses, high-end automobiles and other typically debt based assets) become less essential and increasingly fall into lower demand. As a result, the prices for them fall due to the decreased volume of money chasing them. The decreasing costs to purchase these non-essential assets is the price-deflationary arm of biflation.

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