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I thought of Central banks as the regulators of financial markets. But surplus reserves of some Central banks surpass giant corporate companies.

Please explain me how do they manage to make profit in just regulating activity and printing currency.

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Central Banks are not made to make profit. They are there to stabilize the price (inflation) and avoid crisis.

But to do that, they sell and buy assets. If they do a good job, they must purchase assets when they are undervalued and sell when they are overvalued. By doing that they are making profit.

This is good because Central Bank's infrastructure does have a cost. If they were not making profit, they would have to be financed by the taxpayer. When a central bank is making profit, they typically give this money back to the state, lowering the amount of needed taxes.

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Central banks are banks.

At present in developed countries, central banks issue “currency in circulation” (e.g. dollar bills). In countries with reserve requirements (like the US), private banks are required to hold deposits at the central bank (“reserves”). These instruments are liabilities, and mostly pay 0% interest.

As assets, central banks either hold bonds (mainly government bonds), or lend to banks via various mechanisms. These assets pay interest.

Since they issue liabilities that have a 0% interest, and normally own assets that pay a positive interest rate, they earn a profit. (In recent years, negative interest rates have popped up.)

This link leads to reports describing the US Federal Reserve’s balance sheet: link to Fed report page.

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Amongst the functions of Central Banks are that they are the lender of last resort and they control money supply in a country. Control of money supply does not always mean printing of bank notes. They may mop up excess funds from the economy or inject cash into the economy using various mechanisms that will involve commercial banks, for example, use of Repos and Reverse repos, window borrowings etc. Central banks also require commercial banks to place deposits with them as gurantees. Central bank do not pay any interest for these deposits, they however charge interest for any money they lend to commercial banks(being lender of last resort) thus earning money. Central banks can also directly affect exchange rates through interventions into foreign exchange markets. A central bank can use its domestic currency and foreign currency reserves to buy or sell foreign currencies directly in the foreign exchange market.This will change the quantity of money in circulation hence they will have reserves as its their duty to control the money supply and provide price stability.

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A central bank makes a profit for the fact that it makes money out of thin air. A hundred dollar bill costs them less then fourteen cents to print. They use a simple model of supply and demand. When there is a high need for money small amounts will be circulated, and when the need is small the market gets flooded with the stuff. Fractional lending is another system they use. It works like this. For every hundred dollar bill they consolidate into a loan to a merchant for example. Another 10 hundred dollar bills are printed and loaned out. A big part of a central banks infrastructure in 2019 and beyond is Digital money. In other words their moving into a monetary system that will look a lot like the Apple Pay system. Where you just swipe a computer key to conduct huge transactions with Chase for example instead of delivering the stacks of paper money. Good question keep them coming. enter image description here

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