Evolution and Procedures in Central Banking

Evolution and Procedures in Central Banking

Evolution and Procedures in Central Banking

Evolution and Procedures in Central Banking

Synopsis

First published in 2003, this volume collects the proceedings from a conference on the evolution and practice of central banking sponsored by the Central Bank Institute of the Federal Reserve Bank of Cleveland. The articles and discussants' comments in this volume largely focus on two questions: the need for central banks, and how to maintain price stability once they are established. The questions addressed include whether large banks (or coalitions of small banks) can substitute for government regulation and due central bank liquidity provision; whether the future will have fewer central banks or more; the possibility of private means to deliver a uniform currency; if competition across sovereign currencies can ensure global price stability; the role of learning (and unlearning) the lessons of the past inflationary episodes in understanding central bank behavior; and an analysis of the European Central Bank.

Excerpt

In his book The Cash Nexus, historian Niall Ferguson felt it necessary to argue against the view that it is entirely economic forces that have shaped the history and current state of societies around the world. While we would not take the extreme view that only economic factors are important in understanding history, it is certainly true that economic forces have had a huge impact on many aspects of society. Central banks are, and have been, a major economic force, influencing a wide range of other economic events and, as a consequence, the course of history. But a tantalizing and important question remains: Are central banks an inevitable historical outcome, or just one of many possible institutions that can (and will) arise in the course of economic development?

As we enter the twenty-first century, it seems natural to reevaluate the appropriate roles—if not, in fact, the need—for central banks. To foster this reevaluation, in the spring of 2001 the Federal Reserve Bank of Cleveland held a conference on “The Origins and Evolution of Central Banking.” The purpose of the conference was to shed light on how central banks have come to be what they are, what their objectives ought to be, how central banks should operate to best achieve these objectives, and what kinds of challenges such institutions might face in the twentyfirst century.

There have been few times in history when so many fundamental questions about the role of central banks have been on the table simultaneously. We have recently witnessed major revolutions in the technology of transacting, and undoubtedly we will witness many more. These fundamental changes raise many questions that central banks must confront. What role should central banks play in the payments system? Can central banks promote useful innovations in the technology for making payments, or does their presence in the payments system inhibit innovations that would occur otherwise? As payments system innovations have continued, the need for base money in transactions has declined and will continue to decline dramatically—at least within the United States. What . . .

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