Demand, the stability of the business cycle and the rate of inflation, central banks have

Found themselves in an increasingly central role in economic management. The success of those

which operated at arm’s length from political authority — notably in the USA and Germany (Bundesbank)

— has led other nations to follow in granting independence. The premisses are that the

Temptation to engage in overheating will be diminished if monetary authorities do not have to face

An election every few years; and that credibility of policy will be greater if a bank is in charge. Some

Independent central banks have more power than others. In Britain, New Zealand and Canada,

The central bank essentially decides on the level of interest rates, but does so to aim at an inflation

Target set by the government. In Germany, and indeed in the constitution of the European Central

Bank governing European Monetary Union, the bank sets its own target.

The power of central banks led one commentator in 1996 to assert the western world was in the

Grip of central bankism in reference to the orthodox values most represent. Apart from their function

Of making broad economic judgements, central banks, such as the Bank of France, the Federal

Reserve Bank and the Bank of Canada, control the note issue (banknote), act as the government’s

Bank, accept deposits from and make loans to the commercial banks and the money market,