The widespread adoption of central banking is a rather recent phenomenon. At the start of the 20th century, approximately two-thirds of sovereign states did not have a central bank. Waves of central bank adoption occurred in the interwar period and in the aftermath of World War II. In the 20th century, central banks were often created with the intent to attract foreign capital, as bankers preferred to lend to countries with a central bank on the gold standard. The Egyptians measured the value of goods with a central unit called
shat. Like many other currencies, the shat was linked to
gold. The value of a shat in terms of goods was defined by government administrations. Other cultures in
Asia Minor later materialized their currencies in the form of gold and silver
coins. The mere issuance of
paper currency or other types of financial money by a government is not the same as central banking. The difference is that government-issued financial money, as present e.g. in
China during the
Yuan dynasty in the form of paper currency, is typically not freely
convertible and thus of inferior quality, occasionally leading to
hyperinflation. From the 12th century, a network of professional
banks emerged primarily in
Southern Europe (including Southern France, with the Cahorsins). Banks could use book money to create deposits for their customers. Thus, they had the possibility to issue, lend and transfer money autonomously without direct control from political authorities.
Early municipal central banks where the city's
Taula de canvi was operated The
Taula de canvi de Barcelona, established in 1401, is the first example of municipal, mostly public banks which pioneered central banking on a limited scale. It was soon emulated by the
Bank of Saint George in the
Republic of Genoa, first established in 1407, and significantly later by the
Banco del Giro in the
Republic of Venice and by a network of institutions in
Naples that later consolidated into
Banco di Napoli. Notable municipal central banks were established in the early 17th century in leading northwestern European commercial centers, namely the
Bank of Amsterdam in 1609 and the
Hamburger Bank in 1619. These institutions offered a public infrastructure for cashless international payments. They aimed to increase the efficiency of international trade and to safeguard monetary stability. These municipal public banks thus fulfilled comparable functions to modern central banks.
Early national central banks in 1791 The Swedish central bank, known since 1866 as
Sveriges Riksbank, was founded in
Stockholm in 1664 from the remains of the failed
Stockholms Banco and answered to the
Riksdag of the Estates, Sweden's early modern parliament. One role of the Swedish central bank was lending money to the government. The establishment of the
Bank of England was devised by
Charles Montagu, 1st Earl of Halifax, following a 1691 proposal by
William Paterson. A
royal charter was granted on through the passage of the
Tonnage Act. The bank was given exclusive possession of the government's balances, and was the only limited-liability corporation allowed to issue
banknotes. The early modern Bank of England, however, did not have all the functions of a today's central banks, e.g. to regulate the value of the national currency, to finance the government, to be the sole authorized distributor of banknotes, or to function as a
lender of last resort to banks suffering a
liquidity crisis. In the early 18th century, a major experiment in national central banking failed in
France with
John Law's
Banque Royale in 1720–1721. Later in the century, France had other attempts with the
Caisse d'Escompte first created in 1767, and
King Charles III established the
Bank of Spain in 1782. The
Russian Assignation Bank, established in 1769 by
Catherine the Great, was an outlier from the general pattern of early national central banks in that it was directly owned by the Imperial Russian government, rather than private individual shareholders. In the nascent
United States,
Alexander Hamilton, as Secretary of the Treasury in the 1790s, set up the
First Bank of the United States despite heavy opposition from
Jeffersonian Republicans.
National central banks since 1800 in
Helsinki in
Washington, D.C. houses the main offices of the
Board of Governors of the Federal Reserve. in
Beijing Central banks were established in many European countries during the 19th century. Napoleon created the
Banque de France in 1800, in order to stabilize and develop the French economy and to improve the financing of his wars. The Bank of France remained the most important Continental European central bank throughout the 19th century. The
Bank of Finland was founded in 1812, soon after Finland had been taken over from Sweden by Russia to become a
grand duchy. Simultaneously, a quasi-central banking role was played by a small group of powerful family-run banking networks, typified by the
House of Rothschild, with branches in major cities across Europe, as well as
Hottinguer in Switzerland and
Oppenheim in Germany. The theory of central banking, even though the name was not yet widely used, evolved in the 19th century.
Henry Thornton, an opponent of the
real bills doctrine, was a defender of the bullionist position and a significant figure in monetary theory. Thornton's process of monetary expansion anticipated the theories of
Knut Wicksell regarding the "cumulative process which restates the Quantity Theory in a theoretically coherent form". As a response to a currency crisis in 1797, Thornton wrote in 1802
An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, in which he argued that the increase in paper credit did not cause the crisis. The book also gives a detailed account of the British monetary system as well as a detailed examination of the ways in which the Bank of England should act to counteract fluctuations in the value of the pound. In the United Kingdom until the mid-nineteenth century, commercial banks were able to issue their own banknotes, and notes issued by provincial banking companies were commonly in circulation. Many consider the origins of the central bank to lie with the passage of the
Bank Charter Act 1844. creating a ratio between the gold reserves held by the
Bank of England and the notes that the bank could issue. The Act also placed strict curbs on the issuance of notes by the country banks. In 1913, the U.S. created the
Federal Reserve System through the passing of
The Federal Reserve Act. Following
World War I, the
Economic and Financial Organization (EFO) of the
League of Nations, influenced by the ideas of
Montagu Norman and other leading policymakers and economists of the time, took an active role to promote the independence of central banks, a key component of the economic orthodoxy the EFO fostered at the
Brussels Conference (1920). The EFO thus directed the creation of the
Oesterreichische Nationalbank in
Austria,
Hungarian National Bank,
Bank of Danzig, and
Bank of Greece, as well as comprehensive reforms of the
Bulgarian National Bank and
Bank of Estonia. Similar ideas were emulated in other newly independent European countries, e.g. for the
National Bank of Czechoslovakia.
Brazil established a central bank in 1945, which was a precursor to the
Central Bank of Brazil created twenty years later. After gaining independence, numerous African and Asian countries also established central banks or monetary unions. The
Reserve Bank of India, which had been established during British colonial rule as a private company, was nationalized in 1949 following India's independence. By the early 21st century, most of the world's countries had a national central bank set up as a
public sector institution, albeit with widely varying degrees of independence.
Colonial, extraterritorial and federal central banks Before the near-generalized adoption of the model of national public-sector central banks, a number of economies relied on a central bank that was effectively or legally run from outside their territory. The first colonial central banks, such as the
Bank of Java (est. 1828 in
Batavia),
Banque de l'Algérie (est. 1851 in
Algiers), or
Hongkong and Shanghai Banking Corporation (est. 1865 in
Hong Kong), operated from the colony itself. Following the generalization of the transcontinental use of the
electrical telegraph using
submarine communications cable, however, new colonial banks were typically headquartered in the colonial metropolis; prominent examples included the Paris-based
Banque de l'Indochine (est. 1875),
Banque de l'Afrique Occidentale (est. 1901), and
Banque de Madagascar (est. 1925). The Banque de l'Algérie's head office was relocated from Algiers to Paris in 1900. In some cases, independent countries which did not have a strong domestic base of
capital accumulation and were critically reliant on foreign funding found advantage in granting a central banking role to banks that were effectively or even legally foreign. A seminal case was the
Imperial Ottoman Bank established in 1863 as a French-British joint venture, and a particularly egregious one was the Paris-based
National Bank of Haiti (est. 1881) which captured significant financial resources from the economically struggling albeit independent nation of
Haiti. Other cases include the London-based
Imperial Bank of Persia, established in 1885, and the Rome-based
National Bank of Albania, established in 1925. The
State Bank of Morocco was established in 1907 with international shareholding and headquarters functions distributed between Paris and
Tangier, a half-decade before the country lost its independence. In other cases, there have been organized currency unions such as the
Belgium–Luxembourg Economic Union established in 1921, under which Luxembourg had no central bank, but that was managed by a national central bank (in that case the
National Bank of Belgium) rather than a supranational one. The present-day
Common Monetary Area of Southern Africa has comparable features. Yet another pattern was set in countries where federated or otherwise sub-sovereign entities had wide policy autonomy that was echoed to varying degrees in the organization of the central bank itself. These included, for example, the
Austro-Hungarian Bank from 1878 to 1918, the U.S.
Federal Reserve in its first two decades, the
Bank deutscher Länder between 1948 and 1957, or the
National Bank of Yugoslavia between 1972 and 1993. Conversely, some countries that are politically organized as federations, such as today's Canada, Mexico, or Switzerland, rely on a unitary central bank.
Supranational central banks 's main building in
Frankfurt In the second half of the 20th century, the dismantling of colonial systems left some groups of countries using the same currency even though they had achieved national independence. In contrast to the unraveling of
Austria-Hungary and the
Ottoman Empire after
World War I, some of these countries decided to keep using a common currency, thus forming a
monetary union, and to entrust its management to a common central bank. Examples include the
Eastern Caribbean Currency Authority, the
Central Bank of West African States, and the
Bank of Central African States. The concept of
supranational central banking took a globally significant dimension with the
Economic and Monetary Union of the
European Union and the establishment of the
European Central Bank (ECB) in 1998. In 2014, the ECB took an additional role of banking supervision as part of the newly established policy of
European banking union. ==Central bank mandates==