Since the beginning of the financial crisis in 2007, the study of central banking has witnessed something of a revival. This is no surprise, as the policy tenets commonly held by central banks before the crisis have come under scrutiny. Central banks have shared the blame for not having foreseen or prevented the crisis. At the same time, the policy responses of central banks – and governments – once the crisis did break, have been contrasted, usually favourably, to their (mis)handling of the Great Depression of the 1930s. Negatively or positively, central banks are back in the limelight.

As history looms so large in the current central banking debate, the publication of John Singleton's Central Banking in the Twentieth Century seems perfectly timed. In 16 concise chapters, the author provides a systematic account of the development of central banking since the end of the classical gold standard. The book opens with a series of vignettes portraying the different types of central bankers: from Montagu Norman, man of mystery, to Ben Bernanke, the professor (and expert on the Great Depression). This is a good way to introduce the reader to the key issues in central banking, and a poignant reminder that even in monetary economics people still matter: ‘whether for good or ill, particularly in times of crisis’ (p. 33).

Singleton's narrative follows the by now classical pattern. Central banking started out as a specialist branch of banking with a limited public policy role under the gold standard regime. The disastrous monetary and financial legacy of World War I propelled central banks into prominence, with the emphasis being placed on monetary orthodoxy (the return to gold) and on central bank independence from political influence. This ascendancy was short-lived. The helplessness of central banks in the face of the Great Depression led to what Singleton calls the first revolution in modern central banking. The power to set monetary policy was taken largely out of the hands of central banks. They were relegated to executing government policy, and central bankers acquired the status of civil servants. This status was confirmed under the postwar Bretton Woods system, when many central banks were nationalised and primacy was given to fiscal over monetary policy to achieve the ambitious macroeconomic goals of ‘full employment, prosperity and welfare for all’. Nevertheless, Singleton rightly cautions that state ownership of a central bank should not necessarily be taken as a reliable indicator for its degree of independence and influence.

All the same, the Bretton Woods system placed the direction and regulation of the financial system firmly into the hands of the state. A good deal of financial repression, often managed by the central banks, was required to ensure the system's sustainability. In addition, monetary policy became entangled with the broader geopolitical framework, as the United States sought to exert its hegemony also in the monetary field. In this context, Singleton might have quoted the famous Blessing letter (1967), in which the Bundesbank publicly committed not to convert its huge dollar reserves into gold in order to protect an already overexposed dollar. As shown by Zimmerman (Reference Zimmerman2002), this unusual initiative was implicitly linked to the United States' defence efforts in West Germany. Notwithstanding this apparent subservience of central banks, Singleton's assessment of the effectiveness of postwar monetary policy up to the late 1960s is largely positive.

With the collapse of the Bretton Woods system in 1971-3 and the transition from a state-led to a market-led financial system, central banks regained greater independence and prestige, particularly in combating the Great Inflation of the 1970s-80s. This then inaugurated the second central banking revolution, in which central bank independence, transparency and accountability were the buzzwords, and in which price stability, first through the means of monetary targeting then through inflation targeting, became the overriding goal.

One message of this book is that central banks are always the children of their time: they cannot ignore the intellectual and political environment. Central banking is a business that is continuously in flux. If financial innovation tends to occur in growth spurts, if regulation is always a few steps behind market developments, and if the financial system has a natural propensity for a cycle of booms and busts (Kindleberger), than it is hardly surprising that banking regulation and central bank powers have also waxed and waned over time. This is reflected by the history of central banking during the twentieth century and is unlikely to change in the twenty-first. Indeed, as Singleton suggests, the reassertion of regulation and controls in the wake of the current financial crisis may well have reached its apogee and we may already be on the verge of a third revolution in central banking. Against this cyclical backdrop, central bankers have nevertheless developed into a fairly cohesive community, in which the consensus is increasingly dictated by economists (as opposed to bankers or civil servants in earlier times). But, as events in the 1930s and in the 2000s have demonstrated, too much of a consensus can also turn out to be a dangerous thing (p. 280).

John Singleton has done students of central banking history a big favour. He provides a thorough and well-argued overview, juxtaposing alternative interpretations offered by both the classic and most recent academic literature on the subject. Avoiding the ‘opaque, evasive language’ often associated with central bankers, he discusses the key issues in central banking in clear terms: the shifting emphasis between monetary and financial stability, the merits and problems of monetary and inflation targeting, the importance of (constrained) discretion versus rules, the dangers of moral hazard resulting from bank bailouts and of regulatory capture associated with banking supervision. Moreover, Singleton offers a truly global perspective, devoting interesting sections to Asia (Japan, China and India), Australia, and his native New Zealand, a pioneer of some of the new central banking paradigms of the 1980s and 1990s. Only Latin America and Africa are arguably a little short-changed.

Which direction central banking will take in future is hard to predict. But history can enlighten us about the likely processes that will shape future outcomes, and about the different policy options open to central bankers and to society. This is the true value of this thoughtful book.