Banking without a Central Bank

Abstract

A striking feature of the institutional financial set-up of Cyprus during the colonial period was the lack of detailed legislative or regulatory arrangements for the monetary and banking system. As in all the British colonies, the currency system was based on the sterling exchange standard.¹ Under that system, the issue of Cyprus notes was made upon the authority of a Commissioner of Currency who was the Accountant General. The Commissioner of Currency was authorised to issue Cyprus notes on condition that the equivalent amount in sterling was lodged with the Crown Agents in London and carried in a separate account known as the Note Security Fund. The operations were, in fact, carried out by the Ottoman Bank acting on behalf of the Commissioner. Thus, all Cyprus notes were covered by an equivalent amount of sterling in London.²

‘What could be better? What other system could there be? We are so accustomed to a system of banking, dependent for its cardinal function on a single bank, that we can hardly conceive of any other. But the natural system — that which would have sprung up if Government had let banking alone — is that of many banks of equal or not altogether equal size.’ (Walter Bagehot, 1873, p. 66)