Central Banking Explained Like You’re 5 Years Old
In 11 points

1. Many years ago, whenever there was a rumor that a bank was running out of money, everybody would go into their respective banks to pull money out
2. This is called a bank run. And it usually makes banks go out of business
3. To stop this from happening, the idea of a central bank was introduced. The central bank would be the bank of banks
4. The same role banks play for people, the central bank plays for banks. It is also the insurance of banks to avoid going under
5. However, the function of central banks has evolved over the years. And today, what we know as money is a product of the central bank
6. Central banks in the world include; Federal Reserve Bank of America (USA), European Central Bank (European Union), Bank of Japan (Japan), Bank of England (Britain), and so on.
7. Each country has (at least) a central bank. Each central bank controls a currency
8. The value of each currency is determined by the respective central bank.
9. The US dollar is a product of the Federal Reserve. The Euro is a product of the European Central Bank. The British Pounds is a product of the Bank of England. And so on.
10. The central banks control how much money is in the economy. However, they cannot control how much goods and services are produced
11. When central banks pump money into the economy and there are not enough goods (or services) created, you have too much money chasing after a few products. This results in inflation
P.S. Learn more about central banking in Chapter 4 of my book — https://www.amazon.com/dp/B08BDT947T