Published by EH.Net (November 2019)

Stefano Ugolini, The Evolution of Central Banking: Theory and History.
London: Palgrave Macmillan, 2017. xiii + 330 pp. €135 (hardcover),
ISBN: 978-1-137-48524-3.

Reviewed for EH.Net by Pierre Siklos, Department of Economics, Wilfrid
Laurier University.


The so-called Global Financial Crisis raised the profile of central
banks around the world. While books about central banks were, of
course, published prior to the events of 2008-2009, none captured the
attention of the wider public until the monetary authorities
intervened on a massive scale and continue to do so well over a decade
since the near collapse of the global financial system. A new set of
books emerged, with titles like The Only Game in Town, or After the
Music Stopped, which used a chronological approach to describe what
central banks did as well as contemplating the implications of the
shift from conventional to unconventional monetary policies. The
approach of these books is largely descriptive and the analysis is
largely rooted in depicting the evolution of central banking
activities in select countries over time.

Stefano Ugolini, an Assistant Professor at the University of Toulouse,
argues that this strategy, termed the institutionalist approach by the
author, is not satisfactory. Instead, he proposes a functional
approach to the analysis of the evolution of central banking. Four
functions of central banking are explored. They are: the payments
system, the lender of last resort and supervision, the issuance of
money, and monetary policy. The author claims that one need not rank
order these functions, though the number of pages devoted to the
payments system and the lender of last resort functions suggest that
these may perhaps be relatively more important to the author than the
remaining two functions.

The discussion blends a history of events that reflect the growing
importance of central banks in the global economy together with the
history of thought about the balance between public and private roles
in carrying out central banking functions. As a result, private banks
and their connection with monetary authorities play an important role
in the depiction of the evolution of central banking. For example, we
see how the emergence of clearinghouses led to the creation of
“conventional” central banks via the centralization of this function
at the public level. Hence, this function is treated as a “natural
monopoly.” The same is true of the evolution of many of the other
functions examined. Nevertheless, the author is careful to highlight
how in some countries, such as the United States, the tension between
a role for government versus a preference for a strong role by the
private sector in carrying out certain financial functions can explain
certain cross-country differences in how central banks evolved when
viewed through the lens of the functional approach. It may also be
noted in passing that the experiences of Venice and Naples figure
prominently in the discussion.

Ugolini has written a compact history of the critical functions of
central banks emphasizing how the forces of centralization spurred or
prevented financial innovations. The approach taken is a fresh one and
will be useful, especially to scholars who are interested in specific
areas where central banks have played an important role in economic
development over time. That said, does the book provide new insights
into central banks and their functions? This is debatable. For
example, while financial stability is often mentioned it is not
treated as a separate function. This is a shame in light of the
ongoing debate about whether central banks are possibly over-burdened
with responsibilities. It is also relevant for the question of the
degree of centralization of the various functions considered at the
level of a single institution. Stated differently, greater emphasis by
the author on governance matters might have helped.

Ugolini concludes as follows: “central banking is deeply rooted in the
economic and political context in which it happens to operate, and
that the evolution of the former closely depends on the evolution of
the latter” (p. 271). Readers of “institutionalist” style books of
central banking would have reached the same conclusions. Hopefully,
this is welcome as it means that the functional and institutional
approaches yield similar results but this also means that no
fundamentally new insights about the evolution of central banking are
generated.

Three other elements about the functional approach adopted by Ugolini
are also worth mentioning. First, the discussion is overwhelmingly
centered on the European, British, and American experiences. The book
is silent about how central banking functions evolved in Canada, Asia,
or Australasia. Second, the chapter on the issuance of money does not
discuss how history, or the history of thought, might inform the
current debate about the digitization of money. Finally, the
discussion of the monetary policy function glosses over the evolution
of policy regimes, such as exchange rate or inflation targeting,
preferring instead to focus on its role as a means of regulating and
taxing the public to ensure something called monetary stability.
Unfortunately, the latter expression is never sufficiently clearly
explained. Nevertheless, Ugolini is correct to underscore the
importance of examining how monetary and fiscal policy interact. After
all, this is an issue that is very much at the center of the debate
about the future of central banking.


Pierre Siklos is Professor of Economics at Wilfrid Laurier University
and the Balsillie School of International Affairs. His latest books on
central banking are Central Banks into the Breach: From Triumph to
Crisis and the Road Ahead and The Economics of Central Banking,
co-edited with David Mayes and Jan-Egbert Sturm, both published by
Oxford University Press

Copyright (c) 2019 by EH.Net. All rights reserved. This work may be
copied for non-profit educational uses if proper credit is given to
the author and the list. For other permission, please contact the
EH.Net Administrator ([log in to unmask]). Published by EH.Net
(November 2019). All EH.Net reviews are archived at
http://www.eh.net/BookReview.