In earlier times, many commercial banks
issued their own bank notes.
Since about 100 years,
the issuance of bank notes
has been the monopoly of privileged banks,
which are called national banks or
central banks for this reason.
In the eurozone,
the national banks of the eurozone countries
form the euro system
and have a common central bank
called European Central Bank.
Central banks print bank notes,
put them into circulation
and also have the right
to withdraw the bank notes
and destroy them.
Central banks also supply giro money.
Commercial banks must maintain
certain minimum deposits
with the central banks of the countries
in which they operate.
Commercial banks also have the opportunity
to borrow money from the central bank.
In exceptional situations,
central banks buy government bonds
and help countries
finance their sovereign debt less expensively.
In many countries, central banks are involved
in the supervision of commercial banks.
How does the monetary policy
of central banks work in detail?
The central bank steers monetary policy
through interest rates on deposits and loans,
and on the other hand,
through the minimum required deposits of banks.
The interest charged by the central bank
is the main instrument:
This is the so-called key lending rate.
It is adjusted in regular intervals
taking the economic situation into account.
When a central bank wants
to bring more money into circulation,
it lends money to commercial banks
at especially low interest rates.
This makes it possible
for these commercial banks
to make the money available
at less expensive terms to their costumers
Whenever the money supply threatens
to grow more rapidly than the real economy,
the central bank has the possibility
to raise the key lending rate and
the minimum deposit requirement for banks.
This in turn reduces money supply.
This brings us to another
core task of the central bank:
Most central banks including ECB
and the US Federal Reserve are
under an obligation by law 
to keep inflation low.
On top of this, more central banks are responsible
for the administration of the gold
and currency reserves of a state.
These are needed as a “last reserve”
for interventions in
the foreign exchange market
and to finance foreign trade.
Central banks earn a profit through
the creation of money.
This is called seigniorage.
This profit occurs, because the money
from the central bank is usually only made
available to commercial banks with interest,
but does not bear interest itself.
The central bank can keep this profit.
But part of this profit ends up
in the government budget as in most countries
central banks are state owned.
In the current crisis, central banks are increasingly
turning to unorthodox measures.
They are keeping the key lending rate
well below the inflation rate.
They lend money to commercial banks
at very low interest rates
to strengthen the economy in general.
And they buy government bonds in large volumes
to keep bond markets liquid
and push insterest rates down.
