To state that the central bank plays a significant role in the financial system and the real economy is a striking understatement.
All the financial markets are depicted in Figure 1. We hasten to add that the foreign exchange market (from now on called forex market), strictly speaking, is not a financial market, because lending and borrowing does not take place in this market.
Private sector banks play a significant role in the financial system and the real economy. They intermediate between all sectors of the economy and other financial intermediaries and institutions, and some of them provide the payments system, which most of us use every day.