The standard account of the historical development of central banking—that emerged in various academic publications during the 1980s and 1990s—traces the origin of central banks to Sweden and England in the seventeenth century. These first two cases— the Riksens Ständers Bank and the Bank of England—remained exceptions until the early nineteenth century, when Napoleon gave a decisive impetus to central banking on the European continent.

As its title makes clear, Central Banking before 1800. A Rehabilitation corrects this misunderstanding. It argues that many leading banks in European states before 1800 can be called central banks. Ulrich Bindseil—Director General of Market Operations at the European Central Bank—is the author of several books and articles on the implementation of monetary policy that were already informed by economic history. While keeping an eye on current policy issues, Central Banking before 1800 is different. It is a true work of economic history, based on extensive use of secondary literature and primary sources in several languages. Drawing on such a variety of sources, Bindseil has patiently reconstructed the history and activity of the early central banks, focusing on their balance sheets and financial operations. The reader learns immensely about what kind of loans they made, to whom, and when. The most technical details and figures are included in a lengthy appendix that is presented as a “catalogue” of 25 central banks prior to 1800.

The book offers much more than a catalogue. After presenting the current view of central banking history and why it needs to be corrected in Chapter 1, the author discusses his definition of a central bank in the next chapter. This second chapter is essential to the argument of the book. Bindseil attacks the idea that a central bank can be defined by a monopoly of issuing coins and banknotes or as the government’s main lender. Instead, he defines a central bank as an institution that issues “financial money of ultimate quality.” This definition literally takes what a central bank is. It is a bank, and it is central. Being a bank means that it is different from a printing press or a mint. Being central means that its main characteristic is to be at the heart of the financial system. Its centrality requires that it produce the safest (highest quality) asset that is used by other institutions. There is no central bank without a credit system. Credit relationships create debts, that is, promises to pay (IOUs). As long as these debts circulate in the form of financial assets, their settlement becomes more complicated and riskier. The central bank creates a form of financial debt (its liabilities), that is, financial money, which is different from real money (bills and coins). This financial money is a means of settling private credit relationships, overcoming the disadvantages of species and fiat money and the risk associated with the credit system. Before moving on to the presentation of the actual operations of central banks, Bindseil supports his argument by making a detour through the history of economic thought. He draws on the writings of 17 economists from several countries and convincingly shows that the specificity of central bank financial money was recognized by these authors, even if they did not use the same language as today’s central bank theorists.

After exposing these principles, Bindseil explains how central banks managed to make their financial money accepted and considered of the highest quality. The support of the government is needed, and many early central banks, like the Bank of Amsterdam in the 1790s, eventually failed because this support was incomplete (as Chapter 7 briefly argued). The central bank also needs a charter to limit money creation. Besides an effective governance structure, the most important feature concerns convertibility. Most central banks before 1800 had to commit to converting their liability into specie upon request. However, as the author shows in great detail, the definition of convertibility could differ greatly from one central bank to another. Flexibility was the norm, not full convertibility. The last criteria for ensuring trust in central bank credit was good management of the assets, that is, avoiding taking too much risk. Consistent with these criteria, the following chapters explore more precisely the lending practices and rules of the central banks. This is where the conceptual apparatus developed in Chapter 2 meets the detailed numbers of central bank balance sheets collected in the appendix. The result is a brief but very effective presentation of the techniques and issues of lending to the government (Chapter 3) and lending to private borrowers (Chapter 4).

Lending to the government was one of the main activities of most early central banks, which were generally state-owned institutions. The Casa di San Giorgio (Genoa) and the Bank of England were the first to adopt private ownership to achieve formal independence from the government, a model that became dominant in the nineteenth century and until WWII. This is not to say that other early central banks were entirely subservient to governments. Bindseil presents the formal procedures that limited government financing in several of them (Barcelona, Amsterdam, Stockholm, Vienna). The reader will have to look elsewhere, however, for a detailed history of the complex and peculiar political relationships between a central bank and a government. Bindseil briefly reviews the existing literature in this regard, but no doubt additional case studies from a political history perspective should be illuminating.

The chapter on lending to private borrowers and subsequent chapters on lender of last resort (Chapter 5) and balance sheets (Chapter 6) go further than any previous study of the topic to illuminate how pre-1800 central banks lent to other banks and managed financial risk. Throughout the book, Bindseil acknowledges that his study belongs to a recent revival of research on early central banking. In the last 20 years, several authors (interestingly, most of them have worked or work in central banks) such as William Roberds, Stephen Quinn, Clemens Jobst, Juha Tarrka, Isabel Schnabel, and Hyun Song Shin have devoted their attention to the economic history of one of these banks. Stefano Ugolini and, separately, William Roberds and François Velde then provided a recent comparative look at the issue. Ugolini devoted an in-depth analysis of the banks of Venice, Genoa, and England, in a book on the general evolution of central banks and payment systems up to the nineteenth century. Roberds and Velde were the first to comprehensively review the financial activities of these banks in Europe and, like Bindseil, they emphasized their role in producing a safe and liquid asset that could be accepted by other financial agents. However, they were still reluctant to call them central banks (they preferred “early public banks”) because these banks did not have a monopoly of control over a nation’s monetary base. Bindseil’s book is very complementary to these earlier studies, and future researchers will need to consult all of them to find complete information on early central banking. However, he goes much further in describing lending to private borrowers, which is why he points out more continuity between pre- and post-1800 central banks than Roberds and Velde. Bindseil argues that his peers focused too much on lending to the government and failed to capture the breadth of lender-of-last-resort operations prior to 1800. He provides compelling evidence of the variety of lending operations (Chapter 4) and liquidity support during the eighteenth- century financial crises in Hamburg, Amsterdam, and England (Chapter 5). He draws some important conclusions. A lender of last resort existed in some cities before 1800 and was not an invention of nineteenth-century central banking. The private lending activity of most of the early central banks (conducting outright transactions or accepting a wide range of collateral to support local credit and business) studied by Bindseil also provides a striking precedent for nineteenth-century central banks.

Recognizing that central banking did not begin with either the Bank of England or Napoleon should not lead us to conclude that everything was written before 1800. Although Bindseil concludes with a note on the “universal challenges of central banking across time,” he avoids the trap of compressing the next centuries too much and suggests that post-1800 history is irrelevant. From my perspective (as a historian of late nineteenth- and twentieth-century central banking), the differences between pre- and post-1800 central banking are as important as the similarities. It is true that many challenges existed before (lender of last resort, banknote issuance, central bank independence, criticism of the centralized power of finance). However, the changes that occurred after 1800 in political regimes, banking systems, and international finance took central banking to another dimension. Bindseil criticizes Charles Goodhart’s work for neglecting pre-1800 central banking, but he does not break with Goodhart’s approach, which reads the evolution of central banking as the sequential emergence of new “functions.” Bindseil’s rehabilitation tells us that most central banking functions do indeed predate the nineteenth century. However, the emergence of nation-states in the nineteenth century radically altered the issues related to these functions, particularly with respect to lending to private borrowers and control of the monetary base. Discussions about the privilege of issuing money raised new challenges for governments, including those associated with the symbolism of a common (paper) currency for heterogeneous populations. The expansion of central bank branches throughout the country shaped national credit and payment systems in ways that were unparalleled before 1800. The emergence of commercial banking in the late nineteenth century, which made bank deposits available to households and businesses, also changed the financial and political scope—and probably the nature—of liquidity support to banks. For this reason, central banks that had some early experience as lenders of last resort nevertheless allowed their banking system to collapse in the 1930s. Finally, although the history of early central banks such as the Bank of Amsterdam or the Bank of Hamburg shows that these banks played a role in insulating domestic financial conditions from international financial contagion, this is a far cry from the great role that central banks began playing in the twentieth century in accumulating foreign exchange reserves and intervening in foreign exchange markets.

I would like to conclude with another important contribution of Bindseil’s research that is not made explicit in the book but is another reason why Central Banking before 1800 should not be read only by early modern historians. In many countries (from Italy to Brazil), the national central bank was founded in the nineteenth or twentieth century in the footsteps of a previous large bank that had neither a monopoly on money issuance nor a public mandate, but that provided the banking system with credit of the highest quality. Transposed to the specific history of these countries, Bindseil’s historical and conceptual frameworks are thus an invitation to shed new light on the central role played by large private banks before the formal creation of a central bank. This future research may highlight how the continuity of certain economic functions interacts with major changes in the institutions and politics of money.