Stock Market Glossary
Central bank money
Money issued by a central bank as cash and bank reserves held with it.
In brief: Money issued by a central bank as cash and bank reserves held with it.
Meaning in practice
Central bank money comprises banknotes and the reserves commercial banks hold with a central bank. Private individuals use it directly mainly as cash, while interbank payments can settle through reserves. Changes in policy rates, liquidity operations or reserve requirements affect financing conditions, but do not mean new central bank money reaches investors or the real economy one for one.
Context for investors and traders
For investors, the term becomes practical in the context of objectives, time horizon, risk capacity and costs. A suitable solution can differ between two people even when they consider the same product or metric.
How to use this in practice
The term becomes practical when expressed in numbers: what is the position weight, which costs apply, what loss is possible and what role does it play in the portfolio? These questions prevent an otherwise useful product from becoming too large or being used at the wrong time.
What to keep in mind
Include taxes, spreads, product structure and personal liquidity reserves in comparisons. Historical returns and a fund’s or index’s characteristics describe the past, not a promised future result.
