Central Banking¶

M. H. de Kock (1939). Central Banking. P. S. King & Staples Limited, London.


Type	book
Scope	Comparative and methods
Method	synthesis review
Period studied	1694–1938
Regions	Great Britain, United States, Europe, South Africa, Latin America, Commonwealth/Dominions
Themes	macro fiscal finance debt, comparative theory, business and state
Citation key	`kock1939`

Argument¶

A practitioner's comparative survey of the functions, instruments and constitution of central banks, by the Deputy Governor of the South African Reserve Bank. De Kock traces how central banks evolved from banks of issue into lenders of last resort and controllers of credit. He argues that credit control is real but limited by non-bank credit, velocity, non-monetary factors and human judgment. Price stabilisation and business-cycle control by monetary means are therefore unrealistic, and central banks must keep independence from the state; the gold standard supplies discipline, while managed money and suspension of gold invite state pressure. He documents a 1930s trend toward greater state participation in central banks and wider use of open-market operations and variable reserve requirements.

Evidence and method¶

Statutes and charters of central banks (League of Nations Monetary and Central Bank Laws, Kisch and Elkin), central bank balance sheets and weekly statements, annual reports, royal commission and Macmillan Committee reports, and secondary literature (Burgess, Hawtrey, Sayers, Willis, Keynes, Northrop and others). Statistical tables cover note circulation and rediscounts for the SA Reserve Bank, Bank of England, Federal Reserve Banks and Reichsbank.

Findings¶

Statement of the standard definition of a central bank's eight functions. (p. 26)

a central bank being generally recognised as a bank which performs, as best it can in the national economic interest, the following functions
Gold-standard discipline and state pressure on central banks vary together. (p. 66)

It is virtually an axiom that the gold standard automatically imposes a large measure of discipline on the economic life of a nation and demands the liberation of the central bank from political expediency.
South African Reserve Bank rediscounts show month-end spikes, and the figure at end-February 1932 reflects mining tax payments and capital export. (p. 106)

The high figure reflects the effect of heavy mining tax payments which are regularly made at the end of February and go to the credit of the Government's account at the Reserve Bank.
Gold dominated South African exports, and the central bank bought all newly-mined gold. (p. 82)

the central bank acquires all the newly-mined gold which represents over 70 per cent. of the value of the total exports
South African commercial banks followed Reserve Bank discount rate changes in overdraft rates. (p. 186)

the commercial banks have been found to change their overdraft rates whenever the South African Reserve Bank changes its discount rate, and invariably in the same direction
Credit control cannot realistically deliver continuous price stabilisation. (p. 136)

there is no prospect of effective credit control being achieved, except under special circumstances and for short periods
The Reserve Bank had to act as lender of last resort within two years of its founding. (p. 91)

within its first two years the South African Reserve Bank was called upon to face the responsibilities of lender of last resort when one of the commercial banks became involved in difficulties
Monetary policy cannot offset non-monetary forces. (p. 134)

there are so many non-monetary factors constantly at work, whose influence and bearing on the price situation cannot be precisely determined, that their effects cannot be wholly countered by monetary action
Recent trend toward more state participation in central banks. (p. 287)

in the statutes as drawn up or amended in recent years, the State has generally assumed a more important role both in respect of the ownership and management of central banks