The institution that sits above the banks — issuer of the national currency, lender of last resort when a panic threatens to bring the system down, and setter of the interest rate that prices borrowing across an economy. The central bank manages the value of money, and its power has grown enormously even as its legitimacy stays contested.
In September 2008, as Lehman Brothers collapsed and credit froze worldwide, one set of institutions — working alongside treasuries and regulators — did more than any other to decide how far the panic would spread. Not legislatures, not voters. The central banks. The Federal Reserve, the Bank of England, and the European Central Bank lent trillions of dollars, pounds, and euros to banks that could not borrow anywhere else, accepted collateral nobody else would touch, and in doing so chose which firms lived and which were allowed to fail. The people running these institutions were not elected. Most citizens could not name them. Yet for a few months they held more power over the economy than any prime minister or president. This is the strange position of the central bank. It is the bankers' bank — the one place ordinary banks turn when no one else will lend. It issues the currency in your wallet. It sets the interest rate that decides whether a mortgage is cheap or punishing. And it does all this at a deliberate distance from democratic politics, on the theory that the value of money is too important to be left to elections. Whether that distance is wisdom or a quiet transfer of power away from voters is one of the central arguments of modern economic life.