THE FUTURE OF MONEY Bernard A. Lietaer - library.uniteddiversity ...

demonstrated time and again - from Sumer to Yugoslavia - that
whenever money gets into trouble, whole societies can crumble.
National level
Fires are rare, but when they occur they can be devastating. Entire
cities have burned down because one single person has been careless,
hence the invention of fire brigades and fire inspections. So it is with
money: because financial institutions have proved so accident-prone,
central banks were invented.
Whence central banks?
In the 19th century, the name 'central bank' referred to a bank,
head- quartered in a nation's capital that enjoyed the monopoly of
issuing paper notes in the national currency. Once in a while, these
banks would provide some simple mutual support to each other.
Such was the case in 1825, when the French helped the Bank of
England by swapping a shipment of gold for silver when there was a
run on gold in London; a favour which the English returned in 1860,
when the Banque de France was in dire straits. But such cases of
mutual help were rare, little publicised and certainly would not have
been considered part of the official duties of a central bank. Ah this
changed with the Bretton Woods Agreement, which set up the
framework for the post-World War II global environment (see
sidebar). Central banks now play much more complex roles.
- They serve as 'emergency firemen' whenever a bank or the whole
system gets into trouble. This is called respectively 'lender of last
resort' and 'systemic risk management' in the jargon.
- They carry the ultimate responsibility for controlling inflation in
the country. Over the past decades, this task has been the one most
closely identified by the general public as a central bank function.