Until the mid-nineteenth century, commercial banks were able to issue their own banknotes, and notes issued by provincial banking companies were commonly in circulation.[17] Many consider the origins of the central bank to lie with the passage of the Bank Charter Act of 1844.[15] Under this law, authorisation to issue new banknotes was restricted to the Bank of England. At the same time, the Bank of England was restricted to issue new banknotes only if they were 100% backed by gold or up to £14 million in government debt. The Act served to restrict the supply of new notes reaching circulation, and gave the Bank of England an effective monopoly on the printing of new notes.[18] The Bank accepted the role of 'lender of last resort' in the 1870s after criticism of its' lacklustre response to the Overend-Gurney crisis. The journalist Walter Bagehot wrote an influential work on the subject Lombard Street: A Description of the Money Market, in which he advocated for the Bank to officially become a lender of last resort during a credit crunch (sometimes referred to as "Bagehot's dictum"). Paul Tucker phrased the dictum as follows:[19] "to avert panic, central banks should lend early and freely (ie without limit), to solvent firms, against good collateral, and at 'high rates'". Spread around the world Central banks were established in many European countries during the 19th century. The War of the Second Coalition led to the creation of the Banque de France in 1800, in an effort to improve the public financing of the war. Although central banks today are generally associated with fiat money, the 19th and early 20th centuries central banks in most of Europe and Japan developed under the international gold standard, elsewhere free banking or currency boards were more usual at this time. Problems with collapses of banks during downturns, however, lead to wider support for central banks in those nations which did not as yet possess them, most notably in Australia. The US Federal Reserve was created by the U.S. Congress through the passing of The Federal Reserve Act in the Senate and its signing by President Woodrow Wilson on the same day, December 23, 1913. Australia established its first central bank in 1920, Colombia in 1923, Mexico and Chile in 1925 and Canada and New Zealand in the aftermath of the Great Depression in 1934. By 1935, the only significant independent nation that did not possess a central bank was Brazil, which subsequently developed a precursor thereto in 1945 and the present central bank twenty years later. Having gained independence, African and Asian countries also established central banks or monetary unions. The People's Bank of China evolved its role as a central bank starting in about 1979 with the introduction of market reforms, which accelerated in 1989 when the country adopted a generally capitalist approach to its export economy. Evolving further partly in response to the European Central Bank, the People's Bank of China has by 2000 become a modern central bank. The most recent bank model, was introduced together with the euro, involves coordination of the European national banks, which continue to manage their respective economies separately in all respects other than currency exchange and base interest rates. Naming of central banks There is no standard terminology for the name of a central bank, but many countries use the "Bank of Country" form—for example: Bank of England (which is in fact the central bank of the United Kingdom as a whole), Bank of Canada, Bank of Mexico. Some are styled "national" banks, such as the National Bank of Ukraine, although the term national bank is also used for private commercial banks in some countries. In other cases, central banks may incorporate the word "Central" (for example, European Central Bank, Central Bank of Ireland, Central Bank of Brazil). The word "Reserve" is also often included, such as the Reserve Bank of India, Reserve Bank of Australia, Reserve Bank of New Zealand, the South African Reserve Bank, and U.S. Federal Reserve System. Other central banks are known as monetary authorities such as the Monetary Authority of Singapore, Maldives Monetary Authority and Cayman Islands Monetary Authority. Many countries have state-owned banks or other quasi-government entities that have entirely separate functions, such as financing imports and exports. http://en.wikipedia.org/wiki/Central_bank

• published: 31 Mar 2015
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