Paolo Baffi, a governor of the Bank of Italy, was originally enlisted to write this history of the Bank for International Settlements (BIS) but died before completing the research and writing. He left a text, however, The Origins of Central Bank Cooperation: The Establishment of the Bank for International Settlements (Bari: Editori Laterza, 2002), in which he chronicled the preparatory work leading to the creation of the BIS and the first two years of operation. Professor Gianni Toniolo took over the job in 1999 with the assistance of Piet Clement (Head of Archives and Research Support at the BIS) and has produced a careful and balanced account of the institution from its beginning to the end of the Bretton Woods monetary system. In comparing the two book titles it is worth noting that Baffi identifies central bank cooperation with the BIS and thus downplays a long series of ad hoc cooperative arrangements in the nineteenth and twentieth centuries (e.g., 1825, 1836, 1839, 1890, 1906, 1907, 1909–1911 and the 1920s), whereas Toniolo tells the reader that the BIS did not invent central bank cooperation but institutionalized it.

This history is no easy Sunday afternoon reading. The 488 pages of narrative, structured into 12 chapters and an epilogue, are enriched by 2,189 endnotes and five long appendices ranging from BIS statutes and balance sheets to biographical sketches of eminent people involved with the institution. The book starts with the issue of cooperation, which for the BIS served the objectives of stabilizing exchange rates and smoothing business cycles (chapter 1). Cooperation was to be effected by “frequent meetings, visits, incessant exchange of information, common consultation and joint discussion …” (p. 3). The roots of the BIS, however, are to be found in the transfer of German reparations to the European Allies after World War I (chapter 2). The problem was complex and politically charged, with the Germans wanting to link the size of the obligations to capacity to pay, the French to securitize German payments and ultimately to thwart German industrial development, the British to secure enough payments to settle their debt with the United States, and the United States to delink reparations from war debts. Thus, the BIS was born as much a reparations bank as a locus of central bank cooperation.

The new institution was not lucky with the timing of its launch, as much of the industrialized world was sliding into economic depression. German war reparations certainly did not help. In 1931 the Credit-Anstalt crisis propagated to other parts of Europe. The BIS acted as a crisis manager and lent to the central banks of Austria, Hungary, Germany, and Yugoslavia, but it was too little to do any good (chapter 4). Central bankers, including those who met in Basel, failed to understand that feasible cooperation would not have been enough to sustain the combination of a gold standard and high resource utilization (chapter 5). It was an error in judgment for which central banks paid in reputation and loss of power after World War II. Toniolo is ambivalent on this point. On the one hand, he claims that central bankers could not do more without the full support of their governments. On the other hand, he concedes that they “… were not entirely able, intellectually and professionally, to comprehend the need for and the implications of wholesale policy coordination” (p. 109). Then, in very short succession, the two main pillars upon which the BIS edifice was built—the gold standard and war reparations—collapsed.

The blow was huge but not fatal. Members of the club continued to see one another in Basel, once a month, and discussed in private what they could not voice in public (chapter 6). In fact, the BIS barely survived World War II. The institution was accused, especially by the Americans, of having sided with Germany during the conflict. The specifics involved claims that the BIS had carried out transactions in gold looted by the Nazis and transferred to Germany gold belonging to Czechoslovakia (chapter 7). The inclination at the Bretton Woods conference was to do away with the BIS. Leading the charge was the U.S. Treasury, which, beside the already noted hostility to the institution, saw no role for the BIS in the architecture of the new international institutions. After all, what could the BIS do that the IMF could not also do? In the end, the BIS was saved by the persistence of the European central bankers and by a special charter that gave the institution a great deal of resilience (chapter 8).

After the Second World War, the BIS was out of step with the prevailing economic paradigm and policy prescriptions. The economics of the BIS emphasized budget discipline, sound money, free trade, and international monetary cooperation; there was little sympathy for mechanical application of the standard Keynesian model. To make matters worse, central bankers, the BIS clientele, had lost much of their luster and prestige because of their unrelenting support of the gold standard in the interwar period. Power shifted to ministers of the Treasury, who made central banks subordinate to government (chapter 9). Despite the unfavorable winds, the BIS acquitted itself well with the European Payments Union that led to currency convertibility in 1958. To be sure, the underpinnings of the union were not in line with BIS thinking that would have prescribed an earlier date for convertibility, freer trade, and a less accommodative monetary policy. But Toniolo concludes that “an early rush to convertibility would have met with insurmountable political obstacles” (p. 345).

International monetary cooperation reached the high point in the 1960s, during the heyday of the Bretton Woods system (chapter 11). The BIS expanded and refined its tool kit of financial engineering in support of the U.S. dollar but could not undo the fundamental flaw of the gold-dollar standard first noted by Robert Triffin.

On paper, the end of Bretton Woods should have made the BIS, along with the International Monetary Fund, redundant. Instead, it was rejuvenated by a different agenda: European monetary integration—which is now complete—and financial regulation—which is evolving (chapter 12).

To sum up, is the world a better place because of the BIS? The Epilogue, an unnumbered chapter, was written with that question in mind. Toniolo tries to be impartial but it is clear that his feelings are for the institution. The fact that members of the club keep coming back to Basel month after month speaks for its value. These folks are voting with their feet. By all accounts, they cherish these secretive meetings with neither agenda nor minutes. They exchange information and points of view, but most of all they feel part of a small and homogeneous group that can make important decisions quickly without the tiring delays and uncertainty of open fora. In the original design the Basel club was set up to distance itself from politics. But politics regained the upper hand after World War II and many central banks became mere agencies of the Treasuries. Now the pendulum has swung back to central bank independence, vindicating the early BIS design. The pendulum has also swung from the Keynesian orthodox paradigm to issues of policy and institutional credibility. By sitting relatively still through the years the BIS has become modern again.