Conclusions

Abstract

Central banking can be defined as an integrated set of public policies aimed at addressing the sources of market failures in the financial sector, esp.: a) network externalities in the payment infrastructure, b) information asymmetries in financial intermediation, c) search frictions hindering the convergence towards a cashless economy, and d) financial frictions hindering monetary stability. Central banks have always derived their legitimation from their “public utility” character: as financial activities complexify, the demand for intervention should increase accordingly. Because strong economies of scope appear to derive from a joint provision of the four central banking functions, central banks may be expected to play an increasingly important role in the future.

If our forefathers – who invented a lot of excellent institutions and sound provisions – had envisioned doing nothing but what their predecessors had done, today we would certainly lack many comforts which, not contrived by ancestry, have been actually devised by posterity. […] If we want to follow in our progenitors’ footsteps, we must imitate them in their alacrity to invent things that are beneficial to the public, as they were used to do; which cannot be done without establishing new provisions and new methods.

Tommaso Contarini , Speech to the Venetian Senate in Support of the Creation of a Public Bank, 28 December 1584 (quoted in Lattes (1869, p. 134), my translation).