Central Bank Account

A central bank account is an account held directly with a central bank. The main holders are commercial banks and other deposit-taking institutions, which use the account to hold reserves and to settle payments with one another, but central banks also keep accounts for their governments, for other central banks and international bodies and, in some countries, for certain non-bank payment firms and financial market infrastructures. The balance in such an account is central bank money, the safest form of money in a domestic economy.

Different names are used for the same idea: a reserve account, a settlement account or, at the US Federal Reserve, a master account. Access is decided by each central bank under its own law. Because an account gives direct access to final settlement and sometimes to central bank lending, who may hold one has become a significant policy question as fintech firms, crypto companies and payment institutions have sought access.

Ordinary people and businesses keep their money in commercial banks. Commercial banks, in turn, keep their own money at the central bank, much as shopkeepers in a town might all bank with the same trusted bank so that paying each other is easy.

When you send money from your bank to a friend's bank, the two banks settle up by moving money between their accounts at the central bank. Since everyone trusts the central bank to stay solvent, that transfer is final: no one has to worry that the money will disappear.

• Payment settlement. Interbank payments are settled across these accounts, usually through the real-time gross settlement system, such as Fedwire in the United States.
• Holding reserves. Banks keep reserves to meet any reserve requirement and as a liquidity buffer; many central banks pay interest on reserves, which is a key tool of monetary policy.
• Central bank operations. Loans from the central bank, standing facility deposits and open market operations are booked through the account.
• Cash services. Banks order banknotes from the central bank and pay for them from their accounts.
• Government banking. The government's own main account, such as the US Treasury General Account, is held at the central bank in many countries.

Traditionally, only licensed banks and similar deposit-takers could open central bank accounts, partly because they are supervised and partly because account holders may need to borrow from the central bank. That has changed in several places. The Bank of England began offering settlement accounts to authorised non-bank payment service providers in 2017. In the euro area, amendments to the Settlement Finality Directive made through the Instant Payments Regulation opened the way for non-bank payment and e-money institutions to join payment systems and hold accounts with national central banks, with access becoming available from 2025. In the United States, the Federal Reserve published guidelines in 2022 for evaluating requests for master accounts, grouping applicants into tiers by how closely they are supervised and insured.

Account holders must meet operating conditions. They need technical connections to the settlement system, resilient operations, and in many cases collateral pledged in advance if they want intraday credit to smooth payments during the day. Central banks generally do not allow accounts to stay overdrawn overnight except through formal lending facilities. Non-bank holders are often admitted on narrower terms than banks, for example with settlement-only accounts, no automatic access to central bank lending and limits on overnight balances.

Supporters of wider access argue that it increases competition, reduces reliance on a small number of sponsor banks and lowers settlement risk, since a payment firm can hold customer funds in central bank money rather than at a commercial bank. Opponents worry about new institutions that are not subject to full bank supervision, about the risk that a widely available, safe account could draw deposits away from commercial banks in a crisis, and about money laundering and operational risks. Applications from novel institutions, including crypto-focused banks, have led to litigation in the United States over how much discretion the Federal Reserve has to refuse master accounts.

Retail customers do not normally hold accounts at central banks. Proposals for a retail central bank digital currency would give households a direct claim on the central bank, though most designs keep commercial banks and payment firms as the interface that opens wallets and checks identity. Wholesale schemes, by contrast, extend the existing system, letting banks settle tokenised assets against central bank money. Both debates turn on the same questions as account access: safety, competition and the role of commercial banks.

• Board of Governors of the Federal Reserve System
• Bank of England