The practice of establishing a country's monetary policy through a government-owned or -controlled institution


Central bank - Wikipedia, the free encyclopedia
"A central bank, reserve bank, or monetary authority is the entity responsible for the monetary policy of a country or of a group of member states. It is a bank that can lend to other banks in times of need. Its primary responsibility is to maintain the stability of the national currency and money supply, but more active duties include controlling subsidized-loan interest rates, and acting as a lender of last resort to the banking sector during times of financial crisis (private banks often being integral to the national financial system). It may also have supervisory powers, to ensure that banks and other financial institutions do not behave recklessly or fraudulently. ..."
Glossary: Central bank, by Percy L. Greaves, Jr., Mises Made Easier, 1974
"An ideal type (q.v.) rather than a scientific term since no two central banks are precisely alike. Almost all modern countries have a central bank which is a large bank operating either as a direct governmental institution or as a private institution whose management is strictly controlled by the government. Most central banks were established by law as the result of a national financial emergency, such as the collapse of a prior credit expansion (U.S. Federal Reserve Banks), or the desire of the government for more funds than it cares or dares to raise through taxes or private loans (Bank of England). Central banks usually attempt to control interest rates, reserve requirements and note issues of the nation's banks and act as the bank of last resort when other banks are pressed for funds while holding investments which the central bank will discount on demand. By such technical procedures, the central bank attempts to control the quantity of 'money in the broader sense' (q.v.) and thus indirectly influence prices, production and employment. Central bank policies are usually determined by a desire to (1) prevent financial panics, recessions or depressions, usually by the expansion of circulation credit (q.v.), and (2) provide the government with funds to cover any deficits not fully covered by funds from private sources."


Don't Blame the Thermometer for the Fever, by Sheldon Richman, Future of Freedom, Jan 1999
Discusses President Clinton's calls for worldwide regulations limiting capital movements and for a new New Deal
"Like the Great Depression itself, big fluctuations result from government mismanagement of money and credit. Let it not be forgotten that the Great Depression occurred 16 years after the Federal Reserve was set up. The problem is central banking, and the solution is a fully market-based monetary system, including free, competitive banking and the private issuance of currency."
To the Opponents of Fractional Reserve Banking: It's not what you think, by Steven Horwitz, 2 Dec 2010
Explains why fractional reserve banking is not, by itself, the source of the money-multiplier process
"So how does new money ever get created and multiplied on net? By injections of new reserves. Only one entity can create new reserves in a fiat money system with a central bank: the central bank. When the Fed conducts open-market operations it adds new net reserves to the system, which enables the money-multiplier process with no offsetting loss in reserves elsewhere. The central bank and only the central bank can do this."
Interview with Adam Smith [via Edwin West], by Edwin George West, The Region, Jun 1994
Professor Edwin G. West stands in for Adam Smith and answers questions from the Federal Reserve Bank of Minneapolis banking and policy issues magazine
"Government regulations have restricted the free trade in money. In the 19th century, many people came to believe that a state-sponsored monopoly in the note issue was an indispensable condition for monetary stability because private issuers had no incentive to restrict their issue. ... The striking fact is that subsequent experience has shown that the danger of overissue is far greater with central banking!"
Ludwig Edler von Mises, by Roger W. Garrison, Business Cycles and Depressions, 1997
Describes how Mises integrated ideas from the Austrian (Böhm-Bawerk), Swedish (Wicksell) and British Currency schools to develop his business cycle theory and offers explanations as to why the theory has not been accepted within mainstream macroeconomics
"Mises recognized, as did Wicksell, that enlightened bank policy would avoid credit expansion, thus minimizing the divergence between the bank rate and the natural rate. Believing, however, that central bank policy as formulated by government officials would be ideologically biased towards cheap credit, Mises favored institutional reform in the direction of free banking."
Related Topic: Ludwig von Mises
Ludwig von Mises: An Economist for Freedom and Free Enterprise, by Richard M. Ebeling, 29 Sep 2016
Discusses three major themes in the works of Mises, namely, business cycle theory, his critique of socialism and the unfettered market economy; includes list of suggested additional readings
"The gist of Mises's argument is that the booms and busts of the business cycle are not inherent in the workings of the market economy. Such macroeconomic fluctuations in employment, output, and prices have their origin in central bank mismanagement of the money supply and resulting manipulations of interest rates that throw savings and investment out of balance, bringing about investment and related spending patterns that are often found to be unsustainable in the long run."
Ludwig von Mises, socialism's greatest enemy: His life and times, by Jim Powell
Lengthy biographical essay on Mises, including details on Menger and Böhm-Bawerk
"Everywhere the Great Depression was blamed on capitalism, but Mises ... made a case that central bank policies were responsible for the Great Depression. Namely, artificially stimulating the economy by holding interest rates below market levels and inflating the money supply. When this process slows down, businesses which had become dependent on it face a financial squeeze, and they begin laying people off. Monetary contraction would bring on a severe crisis."


Steven Horwitz at FFF: "Do We Really Need a Central Bank?", by Steven Horwitz, 2 Dec 2009
Covers the history of U.S. banking up to 1913, the track record of the Federal Reserve since then and what are the alternatives to central banking; includes Q&A period

GMU's Lawrence H. White on Free Banking and the Gold Standard (11/18/10), by Lawrence H. White, 18 Nov 2010
Central Banking vs. Free Banking and the Gold Standard, presentation by Lawrence H. White, Professor of Economics, George Mason University, at the Cato Institute's 28th Annual Monetary Conference
Related Topics: Banking, Gold Standard