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WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
History
Central banks have emerged over the past four centuries when mankind moved from a system of gold or silver backed currencies to unbacked fiat money. The first central bank in the world was the Swedish Riksbank, founded in 1668.
Scottish businessman William Paterson founded the Bank of England in 1694 on request of the British government to finance a war.
The First Bank of the USA was founded in 1791 and had a 20-year charter. It was however revived again in 1816 and gave birth to the Second Bank of the United States. This desperate move to stabilize the currency by US president James Madison was later revoked by US president Andrew Jackson who withdrew the bank's Federal Charter in 1836. In 1841 the Second Bank of the United States ceased all operations.
The history of central banking came alive again in 1913 with the constitutionally disputed foundation of the Federal Reserve.
As all currencies in the world have transformed into unbacked fiat money over the past 4 centuries, i.e. the notes are only worth what they will buy, all countries have some sort of central bank that is responsible for keeping inflation low and provide a money supply that does not overshoot economic growth too much. Other tasks vary widely from country to country.
Political pressure has often led to inflation as rulers want to finance their activities with the in the first place seemingly cheap money.
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