Page 57 - SARB: 100-Year Journey

Central banking trivia
In 1668, Sweden became the first-known country to set up a central bank. It is the oldest central bank in existence.
The Bank of England was founded in 1694 and, given the extent of British colonial expansion and trade, it was, for a long time, the most influential central bank in the world.
The US Federal Reserve was founded only in 1914, when World War I began. Compared with Sweden and Britain, this was rather late. Interestingly, this was long after the founding of the US as a country.
In 1893, long before the US Federal Reserve came into existence, there was severe panic in the US, which saw the failure of about 500 banks. Also noteworthy is that 1914, the year the US Federal Reserve was founded, was a much ‘better’ year in terms of such failures, with well more than 100!
In a public lecture delivered at the West Virginia University College of Economics in 2017, Federal Reserve Chair Jerome Powell gave a fascinating account about why the US central bank was founded so late relative to other jurisdictions. The link to a transcript of the lecture can be found in the references section of this book (Powell, 2017).
US bank failures between 1864 and 1970
Number of banks 4000
3500 3000 2500 2000
1500 1000 500 0
Source: Data prepared and compiled by David Moss (Harvard Business School)
M H de Kock. /SARB
In brief: what central banks do
Central banks are lenders of last resort.
Most readers have never been aware of the circumstance that triggers the need for the SARB to play this role. Even in instances when it has been the lender of last resort, this was done in relative secrecy for the reason central banks exist: to prevent panic.
According to De Kock (1929, p 17), a central bank “... should not attempt to call in loans or restrict credit directly in times of emergency. On the contrary, it should be prepared to lend freely to the commercial banks and others in order to relieve the temporary strain.”
In addition, De Kock (1929, pp 17−18) notes: “In connection with its attempt to steady the money market and keep it free from panics, or at any rate minimise the fluctuations and disturbances in the economic life of a country, it is essential for a Central Bank that it should also be either the sole or the principal banker to the Government.”
47
1864 1868 1872 1876 1880 1884 1888 1892 1896 1900 1904 1908
1912
1916 1920 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964
1968 1970