In a series of academic publications, Edward Nelson has contended that from the 1950s until the late 1970s, UK policymakers failed to recognise the primacy of monetary policy in controlling inflation. He argues that the highwater mark of monetary policy neglect occurred in the 1970s. This thesis has been rejected by Duncan Needham who has explored several experiments with monetary policy from the late 1960s and challenged the assertion that the authorities neglected monetary policy during the 1970s. Drawing on evidence from the archives and other sources, this article documents how the UK authorities wrestled with monetary policy following the 1967 devaluation of sterling. Excessive broad money growth during the early 1970s was followed by the highest level of peacetime inflation by 1975. The article shows that despite the experiments with monetary policy, a nonmonetary view of inflation dominated the mindset of policymakers during the first half of the 1970s. In the second half of the 1970s there was a change in emphasis and monetary policy became more prominent in economic policymaking, particularly when money supply targets were introduced. Despite this, the nonmonetary view of inflation dominated the decision processes of policymakers during the 1970s.

In this paper I examine the effect of introducing an account-based central bank digital currency (CBDC) on liquidity insurance and monetary policy implementation. An asset-exchange model is constructed with idiosyncratic liquidity risk, in which one type of agents require currency and/or CBDC to consume while the other type of agents can use any assets to trade. There arises a liquidity insurance to distribute assets efficiently by type. Since central bank reserve accounts are accessible by the public directly, the large excess reserves (LER) in a floor system can make it difficult to separate the types under private information. Therefore, raising the interest on reserves in the floor system can reduce the aggregate liquidity excessively, and the equilibrium allocation with the LER can be suboptimal.

We consider the debut of a new monetary instrument, central bank digital currencies (CBDCs). Drawing on examples from monetary history, we argue that a successful monetary transformation must combine microeconomic efficiency with macroeconomic credibility. A paradoxical feature of these transformations is that success in the micro dimension can encourage macro failure. Overcoming this paradox may require politically uncomfortable compromises. We propose that such compromises will be necessary for the success of CBDCs.

Post the great financial crisis (GFC) of 2008–2009, there has been a surge in the macroeconomics literature on aggregate uncertainty. Although the recent literature has recognized the adverse real effects of global uncertainty shocks in emerging market economies (EMEs), the role of monetary policy in offsetting these adverse effects and their link with the exchange rates is not explored in the literature. We find that the currently followed interest rate rules (IRRs) under a flexible inflation-targeting regime are ineffective in stabilizing the domestic economy during periods of high global uncertainty in the EMEs. Using a small open economy new Keynesian DSGE model with Epstein–Zin preferences and second-moment demand shocks, we compare and propose alternate monetary policy rules that significantly reduce welfare losses. We find that the best monetary policy rule in terms of welfare depends on the nature of shock that is, first-moment or second-moment shock.

Stock market bubbles arise as a joint monetary and financial phenomenon. We assess the potential of monetary policy in mitigating the onset of bubbles by means of a Markov-switching Bayesian Vector Autoregression model estimated on US 1960–2019 data. Bubbles are detected and dated from the regime-specific interplay among asset prices, fundamental values, and monetary policy shocks. We rationalize the empirical evidence with an Overlapping Generations model, able to generate a bubbly scenario with shifts in monetary policy, and where agents form beliefs over transition dynamics. By matching the VAR impulse responses, we find that procyclicality and financial instability align with high equity premia and the presence of asset price bubbles. Monetary policy tightening, by increasing real rates, is ineffective in deflating bubble episodes.

A key insight from Adam Smith is that economists should base their conclusions about a monetary institution or policy on a careful study of the history of that institution or policy, a study that includes the experiences of other countries. To illustrate Smith’s reliance on financial history we cover five current monetary problems that have close analogies with problems that Smith discussed: (1) inflation, (2) banking panics, (3) public debt, (4) usury laws, (5) central bank digital currencies.

This paper examines whether changes in US presidential administration and central bank turnover during the period 1976–2016 caused regime shifts in Taylor rule deviations. Using a dynamic stochastic general equilibrium model to construct the welfare-maximizing policy rule and deviations from the optimal rule, we find evidence that politics indeed play a key role in explaining these deviations. In addition to politics, unemployment rates and the interest rate spread significantly account for regime shifts in Taylor rule deviations.

Our study of the day-to-day management of monetary policy in the Netherlands between 1925 and 1936 reveals that policy leaders and central bankers were both willing and able to deviate from the monetary policy paths set by other countries, all while remaining firmly within the gold bloc. The Netherlands wielded an independent monetary policy while remaining on gold thanks to its central bank's plentiful gold reserves. Central bankers quelled any speculation against the guilder by exploiting their domestic policy influence and international reputation to restrict capital mobility. However, maintaining pre-war parity until the collapse of the gold standard in September 1936 came at a cost. Our international comparisons and counterfactual analysis suggest that Dutch officials would have avoided a deepening of the Great Depression by leaving gold alongside the UK in 1931.

This article analyses the 1783 proposal to issue readymade notes to the Bank of England's private banking customers. Prior to 1783, I argue that there were two broad categories under which the Bank issued its notes into circulation: (1) notes which were issued to government in relation to the Bank's role as facilitator of the fiscal revenues of state, and (2) notes which were issued to its private banking customers. The readymade note was a form of paper money which the Bank had previously been issuing only to government and, unlike the notes which the Bank originally issued to its private banking customers, was made out in advance of its being issued into circulation. I argue that the transformation suggested in the 1783 proposal was made possible by the unique relationship which the Bank had always had with the government, and I will make three observations based on identifying how this transformation took place.

Credit restrictions were used as a monetary policy instrument in the Netherlands from the 1960s to the early 1990s. Since these restrictions were aimed at containing money rather than credit growth, their focus was on net credit creation by the financial sector. We document the rationale of these credit restrictions and how their implementation evolved in line with the evolution of the financial system. We study the impact on the balance sheet structure of banks and other financial institutions. We find that banks mainly responded to credit restrictions by making adjustments to the liability side of their balance sheets, particularly by increasing the proportion of long-term funding. Responses on the asset side were limited, while part of the banking sector even increased lending after the adoption of a restriction. These results suggest that banks and financial institutions responded by switching to long-term funding to meet the restriction and shield their lending business. Arguably, the credit restrictions were therefore still effective in reaching their main goal. Indeed, we do find evidence of a significant effect of credit restrictions on inflation.

This article examines the aftermath of the 1897 Riksbank Act in Swedish banking. The act placed banks with unlimited liability and those with limited liability on equal footing, removing the note-issuing privileges of the former. We consider whether changes in risk preferences occurred subsequent to the act, or whether extended liability was a sufficient deterrent. We conclude that when legal differences were removed, lower transaction costs for unlimited liability banks (ULBs) spurred aggressive competition, reflected in narrower interest spreads relative to limited liability banks (LLBs). ULBs also took on greater leverage and held less liquidity, which supports the Coasean interpretation that the shareholder liability regime mattered little. After 1897, ULB shareholders continued to receive higher dividends, enjoyed substantially superior returns on equity, and maintained an array of corporate governance controls to shield themselves against their additional risk.

From 1716 to 1718, Sweden experienced a shock of liquidity when the absolutist regime of Charles XII issued large amounts of fiat coins (mynttecken) in order to finance the Great Northern War. After the death of the king in November 1718, the new parliamentary regime decided to partially default on the coins. In international literature, this episode is largely unknown, and in Swedish historiography, scholars have often claimed that the country's currency collapsed in hyperinflation. We assess the performance of the new coins by studying how prices of commodities in various geographic locations developed. We also study bookkeeping practices in order to see how accountants treated the new coins. Our results show that there was a complex relationship between prices and liquidity. Prices of products in high demand by the military increased more than other prices. Accountants did not treat mynttecken and other currencies differently in 1718. It was only after the death of the king that accountants started to differentiate between different types of coins. The value of the fiat coins was linked to the actions and the legitimacy of the royal regime, which is in line with the State theory of money.

We make a distinction between centralized, decentralized, and distributed payment mechanisms. A centralized payment mechanism processes a transaction using a trusted third party. A decentralized payment mechanism processes a transaction between the parties to the transaction. A distributed payment mechanism relies on the network of users to process a transaction on a shared ledger. We maintain that bitcoin is neither a centralized nor a decentralized payment mechanism. It is, instead, a distributed payment mechanism. We then consider decentralized and centralized aspects of the broader bitcoin payment space.

Farley Grubb's recent article in the Financial History Review contains econometric results designed to support his theoretical propositions concerning the paper money of the American colonies. This comment demonstrates that some of his results are spurious and the rest are based on using incorrect testing procedures and incorrect critical values of test statistics.

Colonial Virginia's legislature introduced an inside paper money into its domestic economy that was, at that time, primarily a barter economy without any government or bank-issued inside paper monies in circulation. I decompose Virginia's paper money into its expected real-asset present value, risk discount and transaction premium. The value of Virginia's paper money was determined primarily by its real-asset present value. The transaction premium was small. Positive risk discounts occurred in years when monetary troubles were suspected, namely worries that the government would not redeem the paper money as promised. Counterfeiting, however, was not one of these worries. The legislature had the tools and used them effectively to mitigate the effects of counterfeiting on the value of its paper money. Colonial Virginia's paper money was not a fiat currency, but a barter asset, with just enough transaction premium to make it the preferred medium of exchange for local transactions. It functioned like a zero-coupon bond and traded below face value due to time-discounting, not depreciation.

Based on an extensive survey of French primary sources and a discussion of the recent literature on fiscal policy in France and Europe during Louis XIV's wars, this article revisits the rationale behind the first experiment with paper money undertaken by finance minister Michel Chamillart, comparing it to other belligerents’ strategies, in particular England's, to adjust their monetary regime to the challenges of funding long wars of attrition. The article shows how concerns about economic activity, coinage and the need to finance the war deficit led to a series of debasements of the French currency, the establishment of a bank in the form of a Caisse des emprunts and the introduction of mint bills, which became legal tender and caused the first experience of fiat money inflation in history. Whereas Chamillart's personal shortcomings have been recently suggested as the cause of Louis XIV's humbling in the War of the Spanish Succession, I argue on the contrary that the introduction of paper money in 1704 was key to the capacity of France to sustain its military effort, but that a succession of military defeats against a more powerful coalition led to inflation. I also argue that the introduction of paper money saved the Caisse des emprunts and its bonds which helped sustain the war effort up until the peace. By situating the use of paper money within the broader question of the exercise of power in the absolute monarchy, this article examines the formation of fiscal policy, paying attention to the ways in which government sought advice from experts. It concludes by calling for further studies on policy- and decision-making under Louis XIV.

This article explores long-term trends in risks and returns within central banking using Danmarks Nationalbank as a case study. Core earnings generated by the basic functions and the associated risks typical of a central bank accounted on average for most of the Nationalbank's financial returns over the past 175 years. For a long period, this was the result of a passive risk-management strategy under which financial risks and returns just reflected the various functions performed by the Nationalbank and not the outcome of a deliberate decision-making process. A formalised and holistic risk-management framework was introduced only in the 1990s.

This article documents and analyses monetary reform in Bulgaria, Greece, Serbia and Romania from 1815 (Serbian autonomy within the Ottoman Empire) to 1910, when Greece became the last country in the region to join the gold standard. It explains the five key steps towards monetary reform which the four countries took in the same chronological order, and asks why national coinage and the foundation of a bank of note issue came late in the reform process. The South-East European countries tried to emulate West European prototypes, yet economic backwardness meant such institutions were often different from the outset, remained short-lived or both.

I reconstitute the spending obligations and revenue sources of colonial New Jersey's provincial government for the years 1704 through 1775 from primary sources using forensic accounting techniques. I identify and analyze the methods for raising revenue to meet normal peacetime and emergency wartime expenses. I calculate the provincial tax burdens imposed on New Jersey's citizens. I identify how Britain interfered with New Jersey's fiscal structure. I estimate what the revenues and tax burdens would have been without this interference. New Jersey paid for war expenses by issuing bills of credit, spreading the tax burden of redeeming these bills into the future. New Jersey paid its yearly administrative costs with current property taxes and with current interest earnings from loaning paper money. In the absence of British interference and wars, New Jersey could have driven tax burdens to zero by using interest earnings to pay for all its provincial administrative costs.

Before the Revolution American colonies issued paper money known as ‘bills of credit’. The bills issued in the Middle colonies held their value surprisingly well despite large wartime fluctuations in the quantity issued, but those issued in New England depreciated as the quantity in circulation increased. The bills' stable purchasing power in the Middle colonies has often been attributed to the redemption provisions enacted when the bills were issued. Similar provisions in New England supposedly failed because New England failed to enforce them. This article explores the comparative enforcement of redemption provisions in the two regions, and in New York in particular, and concludes that differential enforcement does not explain the disparity between the New England experience and that in the Middle colonies.