Federal Central Bank Project

Members of the Banking and Monetary Committee of the Global Policy Institute London are assessing the relative effectiveness of the US Federal Reserve Bank in comparison to the European Central Bank. The project takes as its assumption that federal political systems are always dynamic and subject to change. Central banks are a key institution in the mutual determination between them and political federalism. Their development responds to the changing needs of the state at the centre and in addressing the demands of continental economic and political regionalism.

Alexander Hamilton set up the first federal central bank in 1791, a foundational institution of the new American republic. It was ideal typical in consolidating the nation’s debt as the basis of its monetary system, acting as the bank to the American republic, issuing and maintaining a stable currency, and driving economic prosperity. This legacy, despite the Jeffersonian tradition of local democracy, remains in the bloodstream of the present Federal Reserve. The ECB was set up in 1998 as a faux central bank with an independent mandate to issue a federal currency and maintain its real value, within a confederal union.

The global financial crisis, starting in 2007, severely tested the capability of central banks in implementing their core function of stabilizing debt within the banking system. The project’s analysis and empirical research will examine whether the US Federal Reserve Bank was institutionally better placed than the ECB to react to and resolve the GFC, when the effectiveness of direct intervention is measured according to macroeconomic indicators, the return to health of the banking system, and balancing regional financial development.

In the face of the increasing concentration of economic policy within central banks – itself subject to much criticism, the project seeks to open up their decisions to public understanding. The project will present future choices for discussion that are more aligned with the diversity of need and wishes of federal democracies. The project is sponsored by the Madison Charitable Trust and the Federal Trust.

About the GPI

The Global Policy Institute is a research institute on international affairs. It is based in the City of London, and draws on both a rich pool of international thinkers, academics as well as policy and business professionals. The Institute gives non-partisan guidance to policymakers and decision takers in business, government, and NGOs.