SHORT HISTORY OF CENTRAL BANKS AND CENTRAL BANKERS
True histories of central banks and central bankers are as colorful and diverse as countries we can count and then some. As this is not a historical site, we won’t bore you with the fine details. We will take the meta route. We will look at how Central Banks originated on average. This is all we need to move on with the lesson. Essentially, there are two ways in which Central Banks and their bankers come to be:
- Treasure guardians
- Decrees
Treasure guardians
In antiquity and much, much before that; even at the tribal stage, groups of people with some sort of hierarchical structure needed somebody to guard the group’s treasure. In the beginning, this treasure could have been as simple as fire. Somebody had to be in charge of keeping the fire going. It was a life-or-death responsibility as they had not yet learned to produce fire on demand. Or, it may have been something completely different. It does not matter what, it matters only that somebody got assigned the responsibility.
Over time, as groups became tribes and tribes established leaders and leaders became kings, valuable things (king’s properties) needed to be guarded. Some properties were land or grains (commodities) or precious metals. If we go back in time, you will notice that there were always people in charge of valuables. Titles varied a lot and sometimes they acted as tax collector or guards at the same time.
Regardless of who these people were, they were always in charge of valuables. As coinage evolved (see our lesson Real Money For A Real Economy) and governments went into the business of hoarding, creating and debasing currency, somebody had to be in charge of the actual process. It was a technical job that required not only technical skills, but also accounting skills. Enter the Central Banker. As the business of faking money evolved (see our lesson Fake Money For A Fake Economy), these Central Bankers evolved into what they are today. The guardians of fiat money in Monarchies or Monarchical Democracies. So much so, that even today, many of these bankers receive the title of Treasurer.
Of course, the term “Treasure” was switched to Central Bank, as the latter is politically correct and the former would embarrass politicians to no end.
We need to clarify that the history of these Central Bankers is vastly different from the history of normal bankers. The latter group also has its origins in antiquity, but they operated strictly on a profit-basis. They were into banking to make money, not to serve a government.
This is a critical difference. From the very origins of Central Bankers, their sole goal was to safeguard the wealth of the leadership. In other words, their jobs was to serve the Power Elite. Is there surprise then that continue to do the same even today?
Consider this. The very first formal Central Bank (The Bank of England) was chartered in 1694 specifically to help the English government to deal with a gigantic deficit.
Decrees
The second mechanism through which Central Banks and their bankers are created and appointed is through decrees. This is the modern way in which it is done today. When a country is born (be it because it has be de-colonized or seceded through a political change or revolution), the first thing that politicians do is to create a Central Bank by decree. Alternatively, they may just re-purpose through a decree the old Central Bank if one existed.
This is so because politicians (and their puppet masters) recognize that fiat money is the ultimate engine of enrichment. For them, it is simply unthinkable to have a country without a Central Bank. Well.. almost. Arguably Andorra, Monaco and Panama are Central Bank-free. This goes to show that for every rule there are a few exceptions.
THE PURPOSE OF CENTRAL BANKS
As it is to be expected, Central Banks serve two sets of purposes. One public and one private.
Public purposes
Most modern Central Banks are based on Charters or Laws that specify their roles. These documents are usually public and they contain all kinds of nonsense. Some examples include:
- To be the sole issuers of currency of “legal tender” (i.e. to maintain government’s monopoly over money counterfeiting).
- To maintain a “healthy” or “desirable” or “appropriate” inflation level (as if anybody in their right mind would want inflation).
- To maintain a “stable” currency (whatever that may mean)
- To achieve full or maximum employment (probably using their magic wands)
- To protect financial markets (to make sure those who make gigantic mistakes don’t have to pay for them)
And so forth. If you would like have a laugh, search on the net what is the charter or duty of your Central Bank, and then compare this with the current state (or past state) of your country’s economy. Would you be surprised if we tell you that the result of such and inquiry would demonstrate the utter failure of your Central Bank to meet any of its intended goals? Don’t worry. Don’t be embarrassed. We all fell the very same manner with our own Central Banks.
In general terms, Central Banks’ Public Goals are disinformation at best and fraud at worse. These goals are stated in written to make it politically correct to have Central Banks and to be able to cheat you out of your wealth while being mesmerized by economic nonsense. It’s like bread and circus in reverse. On your way to the amphitheater you are robbed of your bread and when you arrive it is closed. No fun and no food. That’s Central Banking for you.
Private (as in hidden) purposes
As we stated previously, the only real job of Central Banks is to enrich and protect the wealth of Power Elites. They do this in many different and technical ways, but at the very core of all of them, there is always one process: to create money out of thin air. That’s the main and ultimate purpose of all Central Banks.
HOW DO CENTRAL BANKS DO IT
Now that we know what are Central Banks’ primary goals, we can take a look behind the curtain to see how they do it.
All Central Banks are banks
This is a simple concept that not too many people understand. Central Banks are many things, but they are still banks. The only difference is that instead of holding people’s accounts, they hold their own account and private banks accounts. And so, Central Banks are private banks’ banks.
As banks, they write checks, loan money and foreclose properties. Of course, in addition to these privileges they have other, what we would call supra-banking privileges (or tasks above what normal banks can do). Chief among them is the ability to create money out of thin air.
All Central Banks have assets
What are assets? Originally assets were simply gold and silver coins. These were valuables that banks had against which they issued warehouse receipts that acted as money. Assets are valuable stuff that can be sold.
However, in modern day Central Banks, things are different. Although a very few Central Banks are notorious for collecting gold, most Central Banks tend to collect Government Bonds. What are they? They are IOUs that the government (not the Central Bank) issues. As such, Central Banks can purchase these bonds and hold them as assets. The purchase, holding and selling of those assets makes Central Banks’ operations trivial because those assets are all digital.
Are there any limits to what Central Banks can purchase and hold as assets? No, as long as those assets affect the Reserves of Private Banks (more of this below).
Note: please see the Glossary if you are unfamiliar with certain words.
Continue to Central Banks - engines of the evil empire - Part 3
