The Evolution of Central Banking

Taken from, Rittershausen, Heinrich, “Die Zentralnotenbank” Frankfurt a.M.: Knapp (1962): pages 18-19, (The History of Central Banks), which was a university textbook for a long time:

“We comprise the development from private issuing banks to modern central banks in the following stages:

A) The very license to issue notes is granted as a state privilege.
B) The state is discovering that the bank is a source of credit.
C) The tax collector’s offices of the state are beginning to accept the still purely private notes in tax payments instead of metal money etc.
D) The state needs money in times of emergencies. The bank cannot refuse large loans. Economically, this loan is long term.
E) This way the note circulation is excessively increasing. Redemption is becoming impossible and therefore being abolished by law.
F) In order to anticipate feared reactions of the public, i.e. refusal of acceptance, repudiation, the notes receive legal tender power, compulsory acceptance (are declared to be “valutarisch” [German]). By this, the note looses its character as a private issue of an interest-free bank currency note.
G) The self regulation of the note supply in accordance with market needs has come to an end. “Per accident”, the central bank has emerged, while, outside of England, experiences, tools and scientific study results (theories) for a central, methodical regulation of the money supply are not available.

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