The Age of Central Banks
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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.
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Chapter 5: The Fiat Standard: Monetary Nationalism, Central Bank Autonomy and Credibility

Curzio Giannini


5.1 INTRODUCTION The nineteenth century had seen the rise of two innovative payment technologies, one founded on the convertible banknote, the other on bank money, both having the metallic standard as protection against abuse. In the twentieth century, instead, the splitting of money from metal was carried through to completion with the success of legal tender. The new payment technology did not differ from its two forerunners in some tangible characteristic or in the manner of circulation. Legal tender is in fact composed of two different elements, which reproduce the forms of money that had come into their own in the previous century: the banknote, now produced under a central bank monopoly, and the deposit with the central bank. What distinguishes the new form of money, therefore, is only its legal nature: money no longer represents a claim to obtain a quantity of metal, but rather a claim to obtain a performance, the transfer of goods or services, whose price, however, is not fixed. It is an intrinsically useless piece of paper or accounting entry. Its utility depends on its acceptance for payment and on the predictability of the price level, and so its circulation depends on a government guarantee as to its future value. It is legal money in the sense that the state takes it upon itself directly to produce and guarantee it. This is an astonishing change of perspective from the previous centuries, when the state was frequently singled out as the main enemy of monetary stability....

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