History of the emergence of central banks

At the very first stages of the development of the economic industry, there were no marginal boundaries between the issuing and commercial banks, but because of the improvement of its structure, the system acquired this need - the need to centralize the bank issue, the need to organize the monopoly right to issue banknotes and to conduct the paramount monetary policy within the state. This was needed by the real world, so the system was organized Central banks of the worldwhich are the main link in the global monetary system.


The Emergence of Central Banks - History and Necessity

The level and nature of the pattern of development of market relations determine the very basic role of the central bank in today's economic system. At a time when the gold standard was the dominant currency, banks were no more than intermediaries to facilitate trade. Of their total number, the largest was singled out to serve the needs of government echelons. In this and all other cases of division of banks of old, their fundamental difference was determined by size, but not by specialization, which is quite characteristic of the psychology of those years.

The decision to organize a central bank came at a time of increasing complexity of promising schemes of market relations, whose innovations required the introduction of additional working mechanisms. The idea of a central bank as a body of state control over the financial market provided a solution to the problem.

The first central bank appeared in Great Britain, in 1694. It was the time of the war with France when the government of England required a large loan, which was issued by a joint-stock bank organized by an association of several merchants. The gratitude of the government was that this bank received the unique rights of placing public loans and of issuing banknoteswhich entered into the payment turnover of the country. Such privileges gave rise to a banking system of public debt management. Later, a century and a half later, the Bank of England acquired the status of a national bank and gained the right of control over the other banks.

The main goal of the Central Bank is to control the chaotic nature of the market

The classical scheme of market economy requires the effective operation of such basic mechanisms as:

  • commercial banks and credit institutions, which provide an environment of free commerce and independent management of private financial assets;
  • an institution of market regulation in the form of central banks, exercising control and targeted influence.

Mankind has empirically come to the conclusion that centralization and guarantee of control are necessary parameters for the efficiency of the banking system. Central banks, defined as regulators of monetary relations, solved the problem of controlling the chaotic nature of the market while preserving private enterprise.

At first, the largest bank in terms of capitalization acquired the status of the Central Bank. A little later, such banks were nationalized and given specific functions. Usually the monetary resources of central banks are owned by the state, but various kinds of financial institutions may also act as shareholders.

After some time, the working functions of central banks have undergone more than one stage of effective modifications. But whatever defines these functions, Central banks have always remained the body of state regulation. As an intermediary between the state and its economy through the banks, the Central Bank operates with certain instruments enshrined in administrative, financial and civil legislation. The main legal act that regulates the activity of the national bank is the Law on the Central Bank of the country, which establishes the respective status of the latter, the levels and degree of influence in matters of monetary policy, and which enshrines the powers of the issuing center of the state.

Central banks - a qualitative step toward a more sustainable global financial system and the progress of the local psychology of the market economy as a whole.

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