Although central banks have pursued the same objectives throughout their existence, primarily price and financial stability, the interpretation of their role in doing so has varied. We identify three stable epochs, when such interpretations had stabilised, i.e. the Victorian era, 1840s–1914; the decades of government control, 1930s–60s; the triumph of the markets, 1980s–2007. Each epoch was followed by a confused interregnum, searching for a new consensual blueprint. The final such epoch concluded with a crisis, when it became apparent that macro-economic stability, the Great Moderation, plus (efficient) markets could not guarantee financial stability. So the search is now on for additional macro-prudential (counter-cyclical) instruments. The use of such instruments will need to be associated with controlled variations in systemic liquidity, and in the balance sheet of the central bank. Such control over its own balance sheet is the core, central function of any central bank, even more so than its role in setting short-term interest rates, which latter could be delegated. We end by surveying how relationships between central banks and governments may change over the next period.
