We may not have branded ATMs or welcoming reception areas, but central banks still make major decisions that can impact your purchasing power, your financial wellbeing and your investment goals. Learn about the inner workings of these institutions—and how they may affect you.

Decisions made by central banks influence everything from stock prices to inflation rates. These important factors, known as monetary policy, help govern the economy and influence your everyday life.

One central bank tool is to adjust the discount rate, which determines how much a commercial bank needs to pay to borrow from the central bank for short-term loans. When the rate is lowered, it makes it cheaper for banks to lend money, encouraging them to do so and fuelling economic growth. Conversely, when the rate is raised it becomes more expensive for banks to lend and slows economic growth.

Central banks can also use a variety of other tools to manage inflation, including buying open market securities (typically longer-term government bonds) to inject liquidity into the economy. This maneuver, known as quantitative easing, is designed to increase the amount of cash in the economy by increasing the assets held by central banks on their balance sheets. When the long-term interest rates earned on these assets exceed the short-term interest rates paid on reserves, central banks can earn a profit. These profits are then transferred to their national governments.

It is important for central banks to seek out a range of views from a wide variety of stakeholders and to make monetary policy decisions independently. This protects them from being constrained by political objectives or pressure from special-interest groups.