Central Banks as Economic Institutions
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Central Banks as Economic Institutions

Edited by Jean-Philippe Touffut

The number of central banks in the world is approaching 180, a tenfold increase since the beginning of the twentieth century. What lies behind the spread of this economic institution? What underlying process has brought central banks to hold such a key role in economic life today? This book examines from a transatlantic perspective how the central bank has become the bank of banks. Thirteen distinguished economists and central bankers have been brought together to evaluate how central banks work, arrive at their policies, choose their instruments and gauge their success in managing economies, both in times of crisis and periods of growth.
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Chapter 1: Monetary Beliefs and the Power of Central Banks

André Orléan


André Orléan INTRODUCTION If all money is fiduciary, as Simiand maintains, we still have to determine, at each stage in its evolution, the reasons for this collective trust. There is no task more imperative for economic historians than to discover its nature and measure its strength, society by society. This calls for a detailed analysis of the whole social atmosphere. (Marc Bloch in a review of François Simiand’s, ‘La monnaie réalité sociale’)1 In a system with purely self-referential money, free of all the constraints of fixed rate convertibility, the central bank’s commitment to maintaining the purchasing power of the unit of account plays a pivotal role. It is responsible both for sustaining the nominal anchorage and for stabilizing private price expectations. Modern theory rightly stresses the importance of this task and the difficulty of accomplishing it. One point is given particular attention: the disruptive influence of the government in power.2 Before elections, the government is tempted to increase the money supply, to the detriment of price stability, so as to stimulate the economy and increase its chances of re-election. Within the framework of a model with rational expectations, private agents, perfectly aware of this inflationary expedient of the incumbent government, adapt their price expectations accordingly, so that the government’s measures simply end up producing inflation, without stimulating production at all. To avoid this result, so prejudicial to everyone concerned, modern theory argues that the central bank should be independent in order to...

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