Edited by Jean-Philippe Touffut
Chapter 2: Monetary Policy in Germany Since 1948: National Tradition, International Best Practice or Ideology?
Carl-Ludwig Holtfrerich INTRODUCTION The historicity of institutions limits the view that contemporary central bankers have of their goals and methods. The theoretical background, which justiﬁes this statement, is the concept of path dependency. It pertains not only to the QWERTY keyboard of a typewriter,1 but to institutions as well. More recently, research has devoted a lot of attention to the link between culture – for example, tradition – and economic institutions and outcomes.2 There is no important industrial country where monetary policy institutions and outcomes have been as varied as Germany’s since the foundation of the Deutsche Reich in 1871: central bank control by and independence from the government; one open and one suppressed hyperinﬂation; the great deﬂation after 1873 and the even greater deﬂation from 1929 to 1932; two periods of foreign exchange controls (1914 to 1919 and, mostly in peacetime, 1931 to the mid-1950s); two currency reforms (1923–24 and 1948), or even four counting the introduction of the Deutschmark in former East Germany in 1990 and the introduction of the euro in 1999; and numerous central bank reforms. Compared to countries such as the United States, Switzerland and Sweden, and even the United Kingdom and France, this is quite a record. Germany’s monetary policy history, until it ended with the creation of the European Central Bank (ECB) on 1 January 1999, is, therefore, one of the best cases from which to draw lessons on the development of central banks as economic institutions. This chapter...
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