The Age of Central Banks

The Age of Central Banks

Curzio Giannini

Curzio Giannini’s history of the evolution of central banks illustrates how the most relevant institutional developments have taken place at times of widespread confidence crises and in response to deflationary pressures. The eminent and highly-renowned author provides an analytical perspective to study the evolution of central banking as an endogenous response to crisis and to the ever increasing needs of economic growth. The key argument of the analysis is that crucial innovations in the payment technology (from the invention of coinage to the development of electronic money) could not have taken place without an institution – i.e. the central bank - that could preserve confidence in the instruments used as money. According to Curzio Giannini’s ‘neo-institutionalist’ methodological approach, social institutions are, in fact, essential in the coordination of individual decisions as they minimize transaction costs, overcome information asymmetries and deal with incomplete contracts.

Chapter 6: International Money: Building Trust in an Underinstitutionalized Environment

Curzio Giannini

Subjects: economics and finance, money and banking


6.1 INTRODUCTION ‘No central bank can be greater than its own State – the creature greater than the creator.’1 Montagu Norman, architect of the gold exchange standard and champion in the 1920s of a kind of ‘Internationale of central banks’, was in no doubt. Central banks were founded on the legitimacy that came from their being part of the state apparatus. For him, the ideal of a supranational central bank was sheer illusion. Yet nowadays the European System of Central Banks (ESCB) is a reality, observed with interest in other geographical areas as a possible model to copy. Indeed there are some who see in the International Monetary Fund (IMF) – in the way it developed after the abandonment of the exchange rate regime conceived at Bretton Woods, above all as a response to the massive increase in international capital mobility in the 1990s – the harbinger of a world central bank. What changed in the duties and prerogatives of the nationstate, in the very concept of central banking, to determine such a radically new perspective? Post-Second World War monetary history can actually be read as a repeated attempt to refute Montagu Norman’s affirmation. True, the fiat standard established itself as a form of emancipation from the economic policy constraints imposed by adherence to the gold standard. What made it an expression of monetary nationalism was its greater flexibility of supply and the fact that it lent itself to being actively managed with collective interests in mind. But already the architects of Bretton...

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