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ID: 139789

Central banks at war / Poast, Paul

Poast, Paul	Article
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Summary/Abstract

War is expensive—troops must be equipped and weapons must be procured. When the enormous borrowing requirements of war make the sovereigns' credibility problem more difficult, central banks enhance a government's ability to borrow. By being the sole direct purchaser of government debt, the central bank increases the effective punishment that can be imposed on the government for defaulting on the marginal lender. This increases lenders' confidence that the government will be punished in case of default, making lenders willing to purchase the debt at a lower rate of interest. The sovereign, dependent on the low borrowing costs offered by the central bank, has an incentive to retain the bank. Data covering the nineteenth and early twentieth centuries reveal that possessing a central bank lowers the sovereign's borrowing costs, particularly during times of war.

Key Words

War ; Financial Development ; Central Banks ; Sovereigns Credibility Problem ; Effective Punishment ; Sovereign Finance ;
Credibility Problems ; Role of Central Banks ; Economic Size

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ID: 173972

Effect of 2008 Financial Crisis on the Distribution of Economic Power / Agarwal, Manmohan; Brahmo, Amrita

Agarwal, Manmohan	Journal Article
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There has been considerable debate over whether the USA is losing its stronghold over the world economy and its power declining, giving way to new leadership from the emerging economies (EEs) like China. This article uses the notion of power based on the resources available to a state. It uses a number of measures to measure the resources available to a state and so assess economic power. It finds that there has been a slight decline in the importance of the developed countries and an increase in that of the developing countries (DCs). However, there is a slight decline in the power of the USA. The increase in the importance of developing countries is mainly on account of China. But the changes do not mean that developing countries can get the changes they desire. There is more of a stalemate.

Key Words

Power ; Finance ; World Economy ; GDP ; Developing Economies ; Economic Size

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