Central banks stand at a fascinating interface between the economy and politics. These days their primary role is to conduct monetary policy, typically by regulating the supply or price of money in the economy. Central banks also have responsibility for the stability of the financial system, act as a lender of last resort in financial calamities, act as a banker to other banks and to governments, and perform a range of other functions in banking and financial systems. In recent decades, in a world of burgeoning financial markets, major assaults on inflation, and a proliferation of financial calamities, central banks have risen to unprecedented prominence. They also face unprecedented challenges.

Central banks became critical institutions in modern capitalism in the latter part of the twentieth century. Standing at the centre of an inflation-prone, traumatised monetary system and at the interface between nation states and newly deregulated and increasingly powerful financial markets, central banks broke out of their cloistered existence and became powerful, aggressive inflation-fighting machines. So pivotal did they become in the fight against inflation that governments worldwide handed them substantial control over monetary policy – these days, the most important weapon of short-term macroeconomic policy. The fight against inflation was a hard-won victory.