THE ROLE OF A CENTRAL BANK IN A MODERN ECONOMY
This research examines the role of central banking in a modern economy. Differing perspectives on the role of central banks are examined.
In a modern market society, central banking provides a variety of functions. These functions range from the provision of transaction services to monitoring and intervening to maintain the integrity of banks and the banking system to efforts to stabilize the value of the currency and assuring the convertibility of bank issues to the implementation of policies designed to manipulate monetary aggregates in the pursuit of macroeconomic goals.
A major contemporary argument in relation to the role of central banking in modern economies concerns whether such a role is valid or whether the role should fall to the markets. Kevin Dowd argues generally that central banking should be abolished in favor of a free banking system sans all governmental controls. Dowd, essentially, rejects any kind of role for central banks. Charles Goodhart, in contrast to Dowd, argues that many of the functions performed by central banks could be performed as well or better by other intermediaries, but that central banking continues to be required to maintain the integrity of banks and the banking system. Both Dowd and Goodhart agree that transactions services could provided by other intermediaries as well (Goodhart) or better (Dowd) as central banks. Further, both Dowd and Goodhart agree that no overriding need exists to stabilize currency values or assure the convertibility of bank issues through central bank (governmental) intervention. Behind just door these two economists have been standing as they reached these conclusions will be addressed later in this research.
Goodhart has little to say on the role assigned to central banking in some countries (the United States is a good example) of promoting macroeconomic objectives rel...