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In What Respects Will the Information Age Make Central Banks Obsolete?
By Lawrence H. White
Introduction
Like a post office, a central bank does useful things. That fact that it does useful things does not make eitherinstitution efficient, at least not in its present-day form as a government agency. By "efficient" here I mean "better than the alternative." Just as private firms can better deliver packages and letters, private institutions can better provide the services that central banks currently provide. If the analogy between the central bank and the post office seems farfetched, consider that government central banks owe their custom to legal restrictions against private currency-issuers, just as government post offices owe their custom to legal restrictions against private letter carriers.
Advances in information technology and financial markets will not be responsible for making today's government-sponsored central banks obsolete (no longer efficient), because government central banks never have been efficient. Information-age technologies are, however, probably increasing the advantages of private monetary institutions in several respects.
Central banks today play five major roles: monopoly issuer of currency, bankers' bank, regulator of commercial banks, lender of last resort, and conductor of monetary policy. We can best evaluate the (in)efficiency of the status quo and the impact of new technology by considering each role in turn.
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