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Central Banks: Reform or Abolish?

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Central Banks: Reform or Abolish?

Cato Institute,

5 min read
5 take-aways
Audio & text

What's inside?

For stability, revive the gold standard, dismantle central banks and let “free banks” compete to issue currency.

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Editorial Rating

7

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Recommendation

In this contrarian critique of central banks, Cato Institute senior fellow Gerald O’Driscoll makes a compelling case for letting competing banks issue their own forms of exchange and for a return to the gold standard. O’Driscoll doesn’t identify a source of political will for such an upheaval, but he embraces the notion with zest. getAbstract recommends his ideas to investors, policy makers, business students and anyone seeking insights about central banking.

Summary

Central banks’ monopoly on money leads raises a simple question: Should central banks exist? Economic theory holds that a monopoly should exist only for a good reason. In 1960, economist Milton Friedman – believing that free and open competition leads to an unfettered issuance of money – held that only a central bank could protect the value of currency. Friedman’s defense of central banking, which held sway for decades, does not stand up to scrutiny. Friedman didn’t account for the economic reality that competition creates superior products. Thus, his defense of central banks was wrong.

Financial legend Walter Bagehot supported central banking ...

About the Author

Gerald O’Driscoll is a senior fellow at the Cato Institute. He is an expert on global monetary and financial issues.

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