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The Elgar Companion to Law and Economics, Second Edition

Edited by Jürgen G. Backhaus

This thoroughly updated and revised edition of a popular and authoritative reference work introduces the reader to the major concepts and leading contributors in the field of law and economics. The Companion features accessible, informative and provocative entries on all the significant issues, and breaks new ground by bringing together widely dispersed yet theoretically congruent ideas.
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Chapter 11: Central Bank

Zelijko Sevic


ˇ ˇ ´ Zeljko Sevic Introduction Central banks as social institutions have not attracted a great deal of attention from researchers in law and economics. The central bank is referred to as the bearer of banking supervision duties, so mainstream law and economics literature has tended to be concerned only with the central bank’s regulatory function. However, this old social institution has a far broader role than that seen up to now, and it gives wide research opportunities in law and economics, and increasingly in law and finance (La Porta et al., 1996; 1997). The central bank as an institution has a particularly interesting history. Central bank: history and its (natural) development When the first central banks or, more correctly, governmentally-sponsored banks, were incorporated, such as the Swedish Riksbank and the Bank of England in 1668 and 1694, respectively, they were entrusted with a monopoly over money issuing in the metropolitan area or in a part of the country. In the majority of cases the central bank was, for a while, the only joint-stock bank in the country. Usually, this market advantage was ‘paid’ as a credit directly extended to the government. In some cases the establishment of a central bank had a nationalist impetus, as in the case of lately created ˇ ´ national states, like Germany and Italy in the 1870s (Sevic, 1996b), although some authors note that they were established to unify what was a quite chaotic system of note issue (Goodhart, 1988). In contrast to all the good points in the...

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