Monetary Policy in the Framework of Economic Policy; Central Banks’ Autonomy

Abstract

Central banks were formerly called banks of issue, though from the beginning commercial banks also issued notes.¹ During the nineteenth century, however, the note issues of central banks, sometimes protected by statutory monopoly, almost entirely superseded those of other banks, and, with government issues and coins, they constituted the everyday small change of the people for tills and pockets. By then, however, the principal form of money in business and general use had become cheques drawn on balances at commercial banks. Meanwhile, in international trade the major currencies of the world had come to accept the gold standard, ensuring steady rates of exchange and operated, in the main, by central banks, since they were usually bankers to governments and held official gold and other reserves. In foreign trade, the principal instrument of commerce consisted of bills of exchange — these were also important in domestic trade — and were dealt in on financial markets, where central banks regulated conditions and influenced the discount rate and other rates of interest.

The part of this paper dealing with the situation in West Germany draws heavily on a contribution by the author to a Festschrift in honour of Prof. Dr. C. F. Scheffer. The title of that article is “Centrale bank en Staat in de Bondsrepubliek Duitsland”. The title of the book is: Geld en onderneming, Leiden 1976.