What to read to understand central banking

FEW WORDS are listened to and scrutinised as closely as those uttered by central bankers. Those bankers control the steering wheel of the macroeconomy by setting interest rates and influencing expectations of their future levels. The first central bank, Sweden’s Riksbank, was founded in 1668. The Bank of England was formed in 1694. Some countries only adopted one much later—America’s Federal Reserve was created in 1913. The original purpose of central banks was to act as the government’s lender, but over time they took on more roles. After several banking panics in the 1800s central banks began to act as lenders of last resort, a function famously described by Henry Thornton, a British banker and member of parliament and Walter Bagehot, an early editor of The Economist. Nowadays, most central banks focus on price and financial stability, while many also aim to achieve full employment. But as technology changes the way finance works, central banks’ activities will evolve, too. These four books (and one paper) will guide you through the history of central banks, how they work now and where they might be headed.