Editing Central bank (section)

====Currency issuance====
At the most basic level, monetary policy involves establishing what form of currency the country may have, whether a [[fiat currency]], [[gold standard|gold-backed currency]] (disallowed for countries in the [[International Monetary Fund]]), [[currency board]] or a [[currency union]]. When a country has its own national currency, this involves the issue of some form of standardized currency, which is essentially a form of [[promissory note]]: "money" under certain circumstances. Historically, this was often a promise to exchange the money for precious metals in some fixed amount. Now, when many currencies are [[fiat money]], the "promise to pay" consists of the promise to accept that currency to pay for taxes.

A central bank may use another country's currency either directly in a currency union, or indirectly on a currency board. In the latter case, exemplified by the [[Bulgarian National Bank]], [[Hong Kong]] and [[Latvia]] (until 2014), the local currency is backed at a fixed rate by the central bank's holdings of a foreign currency.
Similar to commercial banks, central banks hold assets (government bonds, foreign exchange, gold, and other financial assets) and incur liabilities (currency outstanding). Central banks create money by issuing [[banknote]]s and loaning them to the government in exchange for interest-bearing assets such as government bonds. When central banks decide to increase the money supply by an amount which is greater than the amount their national governments decide to borrow, the central banks may purchase private bonds or assets denominated in foreign currencies.

The [[European Central Bank]] remits its interest income to the central banks of the member countries of the European Union. The US [[Federal Reserve]] remits most of its profits to the U.S. Treasury. This income, derived from the power to issue currency, is referred to as [[seigniorage]], and usually belongs to the national government. The state-sanctioned power to create currency is called the [[Right of Issuance]]. Throughout history, there have been disagreements over this power, since whoever controls the creation of currency controls the seigniorage income.
The expression "monetary policy" may also refer more narrowly to the interest-rate targets and other active measures undertaken by the monetary authority.