Harold James: Central Banking Deflowered
[Harold James is Professor of History and International Affairs at Princeton University and Marie Curie Professor of History at the European University Institute, Florence. His most recent book is The Creation and Destruction of Value: The Globalization Cycle.]
After the European Central Bank announced on May 9 that it would buy the government bonds of Mediterranean countries experiencing severe fiscal strains, critics complained that the Bank had "lost its virginity."
The actions looked like a clear contravention of Article 21 of the ECB's Statute, which forbids credit facilities to governments or to European Union institutions.
Keeping prices roughly constant was a very different mission from the historical role of central banks. In the original vision of central banking, price stability was not at all an obvious purpose, since the value of money was cast in terms of specific weights of precious metals.
Instead, central banks were established for two major purposes. First, they were to manage the state's credit, almost inevitably in the wake of costly major wars. This was how the oldest central banks, the Swedish Riksbank (1668) and the Bank of England (1694), came into being. Likewise, another wave of central banks was founded in the early nineteenth century, with the Norwegian and Finnish banks following the example of the Banque de France (1800)....
Permanent virginity is a recipe for permanent sterility. The choice for European central banking is now open: should it play around with multiple political partners, or should it settle down to stable marital bliss with a well-defined mechanism for responsibility and accountability?
Read entire article at Mmegi Online
After the European Central Bank announced on May 9 that it would buy the government bonds of Mediterranean countries experiencing severe fiscal strains, critics complained that the Bank had "lost its virginity."
The actions looked like a clear contravention of Article 21 of the ECB's Statute, which forbids credit facilities to governments or to European Union institutions.
Keeping prices roughly constant was a very different mission from the historical role of central banks. In the original vision of central banking, price stability was not at all an obvious purpose, since the value of money was cast in terms of specific weights of precious metals.
Instead, central banks were established for two major purposes. First, they were to manage the state's credit, almost inevitably in the wake of costly major wars. This was how the oldest central banks, the Swedish Riksbank (1668) and the Bank of England (1694), came into being. Likewise, another wave of central banks was founded in the early nineteenth century, with the Norwegian and Finnish banks following the example of the Banque de France (1800)....
Permanent virginity is a recipe for permanent sterility. The choice for European central banking is now open: should it play around with multiple political partners, or should it settle down to stable marital bliss with a well-defined mechanism for responsibility and accountability?