The role of central banks in monetary affairs: A comparative perspective

Abstract

© Cambridge University Press 2014. This chapter presents a comparative approach to the study of central banks, with emphasis on the evolving role of the US Federal Reserve System and the ECB. A central bank is the key monetary authority in a given jurisdiction, which is typically the jurisdiction of the nation state, though in the case of a monetary union, the area of jurisdiction is supra-national. A central bank is both a regulatory agency and a bank. An underlying theme of this chapter, in line with the general thrust of this volume – namely the limited role that law has played in monetary affairs – is that central banks inhabit a ‘world of policy’ and that we need to further develop central banking law. This chapter looks first at the changing nature of monetary policy and the goal of monetary stability and considers the rebalancing of central bank objectives – the increasing focus on financial stability matters – in the aftermath of the global financial crisis. The federalisation of supervision and crisis management that is taking place in the European Union (EU) replicates the experience of the Federal Reserve System and the Federal Deposit Insurance Corporation in the US one century ago. The chapter then discusses the special relationship between the central bank and the government – bearing in mind that central banks hold a unique position because they are both banker to the government and banker to the banks – and considers briefly the issue of monetary sovereignty.