A Timeline of the World's Central Banks
1668–1694: The First Central Banks
Modern central banking begins in Sweden and England. Sveriges Riksbank was founded in 1668, when the Swedish parliament established a bank under its own control after the collapse of a private predecessor, Stockholms Banco, which had issued Europe's first banknotes and then over-issued them. This makes the Riksbank the oldest central bank still in operation. The Bank of England followed in 1694, founded as a private joint-stock company to lend £1.2 million to the government of William III to fund the war against France. In exchange it received the right to issue notes and to act as the government's banker. Neither institution was created as a central bank in the modern sense; both were set up to solve a specific fiscal problem and only gradually acquired the functions — note issue, banker to the state, lender of last resort — that later defined the role.
1800–1875: The Model Spreads Across Europe
The Napoleonic era and the growth of industrial finance pushed other states to found national banks. The Banque de France was established by Napoleon Bonaparte in 1800 to stabilise the currency after the assignat inflation of the Revolution and to finance the state. The Reichsbank was created in 1876, shortly after German unification, to unify a patchwork of note-issuing banks under the new empire. Across this century the Bank of England refined the doctrine that would define central banking's crisis role: Walter Bagehot's Lombard Street (1873) set out the classic rule that in a panic the central bank should lend freely, at a penalty rate, against good collateral — the lender-of-last-resort principle. The idea that a central bank exists to protect the banking system as a whole, not merely to fund the government, dates largely from this period.
1907–1913: The Panic That Made the Federal Reserve
The United States was a latecomer and a reluctant one. It had experimented with two earlier institutions — the First Bank of the United States (1791–1811) and the Second Bank (1816–1836), the latter killed by President Andrew Jackson's veto — leaving the country with no central bank for most of the nineteenth century. The Panic of 1907, in which the financier J. P. Morgan personally organised a rescue of the banking system because no public institution could, made the gap impossible to ignore. After the deliberations that included the secret 1910 Jekyll Island meeting of bankers and officials, Congress passed the Federal Reserve Act, signed by President Woodrow Wilson on 23 December 1913. The design was deliberately decentralised — twelve regional Reserve Banks under a Washington board — reflecting American suspicion of concentrated financial power.
1913–1971: Central Banks and the Monetary Order
The interwar and post-war decades transformed what central banks did. The Federal Reserve's failure to halt the banking collapses of 1930–1933, later blamed by Friedman and Schwartz for deepening the Great Depression, discredited passivity and strengthened the case for active intervention. The Bretton Woods agreement of 1944 tied major currencies to the US dollar, which was in turn convertible to gold, placing central banks inside a fixed exchange-rate system. The Bank of England was nationalised in 1946, ending its two and a half centuries as a private company. The system held until 1971, when President Nixon suspended the dollar's convertibility to gold, ending Bretton Woods and ushering in the era of floating currencies and discretionary monetary policy that central banks operate in today.
1989–1998: Independence and the Euro
The final phase was the spread of central-bank independence and the creation of a supranational central bank. New Zealand's Reserve Bank Act of 1989 pioneered formal inflation targeting, an approach many central banks adopted through the 1990s. The Bank of England was granted operational independence to set interest rates in 1997, ending direct Treasury control of monetary policy. Most ambitiously, the European Central Bank was established in 1998 under the Maastricht framework and took charge of monetary policy for the euro when the single currency launched on 1 January 1999, replacing the national central banks' independent monetary roles across the member states. The ECB was designed with a strong independence mandate and a primary objective of price stability, reflecting the influence of the German Bundesbank's model.