When a country's financial system wobbles, all eyes turn to one institution. The central bank manages the nation's money supply, sets interest rates, and acts as a lender of last resort when banks run into trouble. The Federal Reserve in the United States, the European Central Bank, and the Bank of Japan are prominent examples.

Their job is a balancing act. Raise rates too quickly and you choke off growth. Cut them too aggressively and you risk inflation. Central bankers spend years studying data and still get it wrong sometimes. The 1970s saw double-digit inflation in many countries after central banks kept money too loose. The 2008 crisis forced them to invent new tools when standard rate cuts hit zero.

Most central banks are independent from elected officials, at least in theory. The idea is to keep politicians from printing money to fund popular spending. In practice, independence varies. Some governments pressure their central banks openly. Others do it through quiet appointments.

Core functions

• Setting short-term interest rates
• Controlling the money supply
• Supervising commercial banks
• Acting as lender of last resort
• Managing foreign exchange reserves