At the centre of each country's banking system is its central bank. A central bank is a financial institution whose main function is to regulate the supply, availability and cost of money in the interest of the general public. Central banking refers to a special group of powers given to the central bank to control the stock of money.

The East African Currency Board issued the East African Currency but instead of issuing three separate currencies, as it is the case now, it issued one currency, the East African shilling. It also acted as a banker to commercial banks and as a lender of the last resort.

However, due to limited authority, the Board could not provide the full range of services normally provided by the Central Bank. On the achievement of independence, there was a need to pursue an expansionary, monetary policy to stimulate economic growth and development.

Some African Heads also argued that independence was meaningless unless they established their own financial affairs. This led to the establishment of the Bank of Tanzania in December, 1965, the Central Bank Kenya in March, 1966 and the Bank of Uganda in May, 1966.

A Central Bank is the main financial institution in the country established by the government to control and guide government finance, commercial banks and other financial institutions; to manage the domestic and foreign monetary systems and advise government on matters of financial nature and importance.