Central Banking for the 21st Century:

Central banks have a venerable history that starts in the late 17th century with the establishment of the Swedish Riksbank and the Bank of England. However, the modern notion of central banking did not begin to emerge until late in the 19th century when central banks began to proliferate. The Bank of Italy was established in 1893 and the American Federal Reserve System in 1914. The spread of central banking to virtually every political jurisdiction is a 20th century phenomenon. Moreover, as the 20th century drew to close, students of central banking seemed to have settled on a clear consensus concerning the role of central banks. But, consensus among economists is often fickle and as soon as the 21st century opened the consensus began to fall apart. The aim of this essay is to explain the 20th century consensus and analyze how it fell apart in the first decade of the 21st century. To begin, what was the consensus? On the micro side, the importance of clearly defined and fairly applied bank regulation is a sine qua non of good central banking. This was not always obvious and for a time in th