Centralized refers to a system or organization where a single entity holds control and makes decisions for the entire group. In the context of banking, a centralized bank is one that has a single entity or organization controlling the supply of money and making decisions for the entire banking system.
In a centralized banking system, the central bank controls the supply of money by printing and distributing currency, setting interest rates, and implementing monetary policies. The central bank makes decisions based on the economic conditions of the country and decides how to regulate the flow of money to meet the financial needs of the economy.
This type of banking system has been in use for centuries, and it is considered traditional. Centralized banking systems are typically seen as stable and secure, but there are some drawbacks. The central bank has a great deal of power, and there is a risk that it may not always act in the best interests of the people it serves. Additionally, centralization can lead to inefficiency and slow decision making, as all decisions must be made by the central entity.