Published by EH.Net (July 2018)

Michael D. Bordo, Øyvind Eitrheim, Marc Flandreau and Jan F. Qvigstad, editors, Central Banks at a Crossroads: What Can We Learn from History? New York: Cambridge University Press, 2016. xix + 697 pages. $155 (hardback), ISBN: 978-1-107-14966-3.

Reviewed for EH.Net by Gary Richardson, Department of Economics, University of California – Irvine.

This volume presents the results of a multi-team, multi-disciplinary research project that was inspired by the bicentennial of the Norges Bank, the Norwegian Central Bank. In the summer of 2012, the editors commissioned a broad range of research from fourteen teams of coauthors. The researchers included renowned international academics as well as policymaking experts. Representatives of all teams presented initial drafts of their research at a conference in Geneva in April 2013 at the Graduate Institute of International and Development Studies. After receiving comments and revising, the authors presented again in June 2014 at a Norges Bank conference titled Of the Uses of Central Banks: Lessons from History. The authors revised their papers once again, to accommodate comments by discussants and editors, and submitted final drafts for publication the following March.

The volume (and the research program which it encapsulates) asks broad questions about the past, present, and future of central banks. Why did the evolve? Will they continue to evolve in the future? What functions do they serve today? How are they structured as institutions? Why are central banks in developing nations so similar? In what ways do they differ? How are they structured as institutions? What are their roles in the international monetary system and among domestic political institutions? What lessons does history have for current and future practitioners of central banking and what does current practice reveal about central banks’ history and evolution?

The book divides the chapters into four groups. The first group provides historical perspectives on the central bank as an institution. This group includes five chapters.

• Chapter 2. “The Descent of Central Banks (1400-1815)” by William Roberds and François R. Velde.
• Chapter 3. “Central Bank Credibility: An Historical and Quantitative Exploration” by Michael D. Bordo and Pierre L. Siklos.
• Chapter 4. “The Coevolution of Money Markets and Monetary Policy, 1815-2008” by Clemens Jobst and Stefano Ugolini.
• Chapter 5. “Central Bank Independence in Small Open Economies” by Forrest Capie, Geoffrey Wood, and Juan Castañeda.
• Chapter 6. “Fighting the Last War: Economists on the Lender of Last Resort” by Richard S. Grossman and Hugh Rockoff.

The second group examines central banks as part of the international monetary system. This group includes four chapters.

• Chapter 7. “A Century and a Half of Central Banks, International Reserves and International Currencies” by Barry Eichengreen and Marc Flandreau.
• Chapter 8. “Central Banks and the Stability of the International Monetary Regime” by Catherine Schenk and Tobias Straumann.
• Chapter 9. “The International Monetary and Financial System: A Capital Account Historical Perspective” by Claudio Borio, Harold James and Hyun Song Shin.
• Chapter 10. “Central Banking: Perspectives from Emerging Economies” by Menzie D. Chinn.

The third group examines central banks as part of a system of regulatory, monetary, and fiscal institutions within a nation. A focus is delineating central banks from other institutions and describing central banks’ powers and limitations. This group contains three chapters.

• Chapter 11. “The Evolution of the Financial Stability Mandate from its Origins to the Present Day” by Gianni Toniolo and Eugene N. White.
• Chapter 12. “Bubbles and Central Banks: Historical Perspectives” by Markus K. Brunnermeier and Isabel Schnabel.
• Chapter 13. “Central Banks and Payment Systems: The Evolving Trade-off between Cost and Risk” by Charles Kahn, Stephen Quinn and Will Roberds.

The fourth group describes central banks from a practical perspective. It contains two papers that describe what central banks do well, what they do poorly, and how their successes and failures lead to gradual changes in central banks’ structure and mission.

• Chapter 14. “Central Bank Evolution: Lessons Learnt from the Sub-prime Crisis” by C. A. E. Goodhart.
• Chapter 15. “The Evolution of Central Banks: A Practitioner’s Perspective” by Andrew G. Haldane and Jan F. Qvigstad.

The introductory chapter provides a clear and comprehensive summary of the chapters. You can read the introduction for free on the Cambridge University Press web site, so I will not summarize that material here. But, I will encourage you to read it. The introduction does a great job of discussing the big questions that still need to be answered about central banks. It explains that the basic story of central banks is to worry about monetary stability in normal times and about financial stability during crises. It also describes their evolution over the long term, hundreds of years, and explains that central banks’ structure and functions have co-evolved along with the structure of the economy.

The quality of the remaining chapters is uniformly high. Researchers interested in the history of central banks may be interested in the entire book. Specialists may want to focus on individual chapters. In my undergraduate course on the history of the Federal Reserve, I now assign portions of Chapters 2 and 4, which examine the evolution of central banking around the world from the fifteenth through the nineteenth centuries; Chapter 7, which discusses the structure of the international financial system and international currencies; Chapter 11, which discusses central banks’ role as a financial supervisor; and Chapter 13, which discusses central banks and payment systems. I have incorporated ideas and visuals from those chapters and several others into my courses’ power point presentations. An example comes from Chapter 15, which does a good job of discussing the dual long-run objectives of central banks, monetary and financial stability. The chapter highlights the interaction between the two, the value of policy independence in pursuing both, and the challenges that arise as the economy evolves and policy-makers struggle to find the right long-run balance and tradeoffs between their multiple objectives. Chapter 15 illustrates these issues with the history of the Bank of England and the Norges Bank. I teach a course on the history of the Federal Reserve, so I have taken ideas from this chapter and use them to frame material about the Fed which I present in my class.

I expect this volume will have lasting value because of the quality of its chapters. The chapters cover a broad range of topics, time, and geography, but return to consistent themes. The chapters are well written and suitable for a broad audience including researchers at universities and central banks but also policymakers and undergraduates who are interested in the topic.
Gary Richardson is the author of “Monetary Intervention Mitigated Banking Panics during the Great Depression: Quasi-Experimental Evidence from a Federal Reserve
District Border, 1929-1933,” Journal of Political Economy (2009). He was the editor for the Federal Reserve’s historical website, which can be found at

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