Search for a command to run...
I was quite looking forward to reading and reviewing this book. The topic is one that interests me and it sounded as if this would provide some new perspectives on it. My enthusiasm lasted only briefly. Not because this is necessarily a bad book, but because while some parts are good, others are not. And the parts that are not good are bad indeed. I will return to this later and mention some of the good parts first. The author, who has worked for much his career at the Banca d'Italia and is now a visiting research fellow at the University of Buckingham, sets out to illustrate the changing role of central banks through three examples: the Bank of England, the Federal Reserve Bank of the United States, and the Banca d'Italia. His overview of their historical background is good. The inclusion of the Banca d'Italia is somewhat puzzling. However, since the author is Italian, it is a natural and obvious choice. But, as he makes clear, the history and experience of the Banca d'Italia are not only different from those of the Fed and the Bank of England (an excellent reason to include the bank in this study) but also very unusual among central banks in general – which prompts the question of whether another central bank, different from the Fed and the BoE but providing more generally applicable lessons, such as the Bundesbank, would have been a better choice. In the end, in some periods, the author spends as much or more time discussing the Bundesbank and/or the Banque de France as he spends on the Banca d'Italia. (Also, the Swede in me is somewhat disappointed that in a book about central banks and money, the Riksbank does not rate a single mention, neither as the oldest central bank in the world nor as a pioneer of bank notes and of price-level targeting.) Roselli's description of the challenges central banks faced in World War I, and how they dealt with them, is good. So too is his overview of the inter-war rise of the intrusive state, which eventually became the welfare state. The events surrounding the compensation paid out to owners of the Bank of England when it was nationalised, and the impact of financial repression in the late 1940s/early 1950s United States, may be familiar to other readers, but they were new to me and thus interesting. (That financial repression leads to inflation was not new to me, I hasten to add.). The discussions about the changes in the central bank paradigm are generally good. It is interesting to read that the Radcliffe Report (a report published in 1959 about monetary policy and the workings of the Bank of England) felt that the main business of the central bank is to manage the public debt. Is this a stage to which we are once again headed? Quite possibly, if President Trump gets his way. In fact, one of the interesting points to come out of this book is that no central bank policy or paradigm change was ever foreordained. It is far too easy (and this is true in general history and military history as well) to look back and assume that what happened had to happen and, often, that those involved were all striving towards the same goal, willing it to happen. One of the positive aspects of Roselli's book is that he shows that this was by no means the case. In fact, frequently we find central banks and governments opposing changes that were eventually implemented and well on what we today would call ‘the wrong side of history’. Roselli also makes some further very good points in this context, for instance pointing out that the shift from exchange rate targeting to inflation targeting also involves a temporal shift from dealing with current exchange rates to being concerned about future inflation. However, he then claims that inflation targeting necessitates independent central banks, which is not entirely clear. Roselli is good on the history of regulation and why it was or was not performed by central banks. So far, so good. So why do I still not like this book? There are a number of reasons. First, it is badly written or proofread. Part of the problem is that Roselli translates word for word from Italian. For instance, he refers to the ESCB (European System of Central Banks) as the SEBC, a direct translation from ‘Sistema europeo delle banche centrali’ (p. 291). He often leaves intact the Italian word order even though it is not the same as in English. He also frequently makes use of the passive voice and jumps between the present and past tenses. These may be minor infelicities, but when they occur frequently they become annoying. Second, there are more serious issues. To judge from the book, Roselli does not appear to understand the concept of legal tender, a fairly fundamental issue in a book on central banking. He writes that banknotes and coins “are legal tender, which means that they must be accepted by law as payment of a good or service, or in discharge of debts” (p. 38). In fact, only the last part of this statement is correct: legal tender must be accepted in discharge of debt. It is perfectly lawful for, say, a shop to say that it will not accept cash or large bank notes, even if these are legal tender. Roselli claims that the fragmentation of the US banking system, with its prevalence of single-branch banking, was a consequence of policies enacted in the 1930s, such as the Glass–Stegall Act. In fact, as Charles Calomiris and Stephen Haber point out in Fragile by Design: The Political Origins of Banking Crises and Scarce Credit (2014), this pattern in US banking goes back well before that, to the nineteenth century, and is a function of traditional US suspicion of banks and cities (and obviously even more of banks in cities). Roselli states that one reason that 2 per cent has become the generally accepted inflation target in most advanced economies is so that that central banks can cut interest rates in a downturn. In fact, it is because of difficulties with accurately measuring inflation and accounting for quality improvements. Roselli also gets some minor facts wrong. One Chairman of the Board of Governors of the Federal Reserve is twice (pp. 201, 203) referred to as William McCabe. It is in fact Thomas McCabe (who was succeeded by William McChesney Martin, hence no doubt the confusion). He repeatedly (pp. 126, 147) refers to the German currency as the Reichsmark. In fact, the German currency was called the Mark until after World War I. It is only after the hyperinflation of 1923–24 that the Reichsmark was introduced. In at least one place he gives a meaningless magnitude, noting “The consumer price index climbed to around 270 percent in Italy, and 234 percent in the United Kingdom (for the U.K., inflation was even worse than in times of war)” (p. 213). But this is irrelevant unless you know the starting point – which is not given. To sum up: a book which had the potential to be both good and interesting, but which is damaged by errors and poor writing.