Does the Central Bank Determine Interest Rates?

“Human life is a process in which the course of future development is always influenced by previous development. It is a process that cannot be continued once it has been interrupted, and that cannot be completely rehabilitated once it has become seriously disordered. A necessary prerequisite of our provision for the maintenance of our lives and for our development in future periods is a concern for the preceding periods of our lives. Setting aside the irregularities of economic activity, we can conclude that economizing men generally endeavor to ensure the satisfaction of needs of the immediate future first, and that only after this has been done, do they attempt to ensure the satisfaction of needs of more distant periods, in accordance with their remoteness in time.”
“He who wants to live to see the later day, must first of all care for the preservation of his life in the intermediate period. Survival and appeasement of vital needs are thus requirements for the satisfaction of any wants in the remoter future.”
By setting the interest rate through exchanges through time, both a borrower and a lender of savings allow for the fluctuations in the purchasing power of money. Expectations for the decline in the purchasing power of money is likely to contribute to an increase in the interest rate expressed in monetary terms. Conversely, expectations that money’s purchasing power is going to increase is likely to contribute towards the lowering of interest rates.