"Central Banks on the Move"

Marcussen, Martin (2003) "Central Banks on the Move". In: UNSPECIFIED, Nashville, Tennessee. (Unpublished)

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Abstract

A great deal has been written about the workings of central banks in the modern international financial system but we do not know much about how and under which circumstances the central bank as a public institution has spread across the globe. Classical accounts tell us that central banks appeared because states wanted to invent ways in which they could finance their war adventures. This is hardly an explanation that explains why the number of central banks has quadrupled during the last forty years. Also, we do not know much about why central bank independence has become a mantra across the world in places as different as India, Chile and Sweden. The classical explanation focuses on the role of conservative central bankers as inflation fighters. However, the puzzle is that central bank independence has also been introduced in countries that have not experienced hyperinflation at all and that many central banks were granted more independence after inflation had been reduced rather than before. The phenomenon becomes even more puzzling when it is remembered that the negative correlation between central bank independence and inflation typically breaks down or simply turns into a direct positive correlation when the sample includes developing and transition countries. Thus, this paper is about diffusion processes. It aspires to come to a greater understanding of how and under which circumstances practices (structures and legal standards) spread across frontiers. The paper is also about central banks. It asks which mechanisms are at stake in the diffusion of the ‘central bank’ as an organizational structure and of ‘central bank independence’ as a legal standard. In terms of conclusion the paper lists a set of plausibility probes about diffusion processes and mechanisms.

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