Central Banking in Perilous Times: An Open-Ended Chronicle

Abstract Conventional understanding relegates the role of central banking to benchmark interest rate guidance which is supposed to have direct and straightforward impact on real economy. Accordingly, central banks are praised for and supposed to stay independent from treasuries and money markets while indirectly influencing both of them by that guidance. This article provides hints for an alternative explanation by investigating central bank dual connection with treasuries and private finance, especially money markets. It recounts the main financial episodes of the last decades from this institutional monetary economic perspective through a dynamic systems analysis covering money and financial aggregates, pointing to the peculiar ways in which this connection has been organised under the market-based (asset-based) finance regime and its systemic failure since 2007.