Central banks are national banks that primarily control the monetary policy of the national economy, through changes in the interest rate. However, they also perform other duties, such as holding reserves of foreign currency, bankrolling government borrowing, and acting as the 'banker's bank', or the 'lender of last resort'.
There are two types of central bank, those that are state-controlled or at best quasi-independent, and those that are fully independent such as the US Federal Reserve and UK Bank of England (since 1997). Due to the potential for political interference in economic policy, with aims other than macroeconomic stability, the potential for infamous boom and bust cycles in an economy is greater for non-independent central banks.
- Central Bank - recommended for further detail and clarification