What do you think?
Rate this book
The Money Minders
In the crises of the past fifteen years, central bankers have become big public players in a drama that affects all our lives, involving financial market crashes, public health threats and devastating economic downturns. Having played a lead role in the global financial crisis and the coronavirus crisis, they are now being asked to broaden their appeal. But the key aim has always been one of simply ensuring monetary and financial stability. In this book, NIESR director Jagjit Chadha unpacks the world of central banking, explaining in accessible language the analytical techniques, policy toolkits or simple story-telling that they use to understand the economy, to implement monetary policy and to communicate their decisions to key decision-makers and the wider public.
250 pages, Paperback
Published February 1, 2022
12 people want to read
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 - 4 of 4 reviews
November 20, 2024
Let’s take a trip through the history of monetary policy
This book has a clear objective that is explicit in its preface and is trying to serve the reader as a guide to the principles of monetary policy debate that has run throughout the years. Its author, Jagijt Chadha, a British economist with a recognized career in the macroeconomic field that has led him to be the current director of the National Institute of Economic and Social Research, knows about the complexity of this mission so much so that he considers it a “heroic task”. I think the book accomplishes this task by providing a structured historical summary of how monetary policy was born and how its paradigms have changed due to the social and economic milestones that humanity has faced.
The author starts by explaining the importance that monetary systems have had since ancient civilizations for the efficient performance of markets and, therefore, a consolidation of a strong state; so much so that some claim “sound money” as the “ultimate public good,” without which states could collapse. He remarks on the importance of the role of money in societies and of having an institution in charge of a monetary policy through interesting historical examples such as the central coinage system of Lydians that strengthened confidence in their currency, the loans used in Mesopotamia to smooth people's consumption, the paper money issues of Song dynasty China when bronze coins shortages, and the English crown's prohibition of banks from issuing money so as not to damage the functioning of the economy during the war with France.
The book then explains how the need for more flexible tools to intervene in the money supply, especially in times of crisis, and the appearance of periodic growth goals for governments ended the gold-based monetary system within the 20th century, although the long-term stability of prices associated with this system. The author considers the Great Depression as one important milestone that made it clear to economists that it is essential to pursue long-term real growth to have a healthy economy, laying the foundations of the countercyclical theory to achieve this; in addition, thanks to this event, Keynesian theories were born pointing to fiscal spending and aggregate demand as catalysts for growth. Another milestone pointed out by the writer was the World Wars, after which monetary policy started to have a more active role in the economy, moving from just standardizing the value of money to being accountable for the economic performance of nations. Since the post-war period, we can observe how central banks use interest rates and money issuing to affect the economy, pursuing growth and inflationary goals.
He shows how the Phillips Curve was one of the first models to help money-minders manage the trade-off between economic growth and inflation because they seemed to have a positive association to care about. But the 1970s stagnation casts doubt on this model because the world was observing high inflation and low levels of growth at the same time, leading to the addition of complexities to the same model, for example, expectations for the future, which affect the present behavior of agents, and the appearance of scientific approaches like the feedback rule. The story continues with the late 20th century debate of central banks' independence, resulting in the majority of them increasing their level of autonomy to have more credibility in their commitment to pursue price stability.
Finally, the book brings us back to the 21st century, explaining how economists started to mind the importance of having a healthy financial system to achieve economic stability. The author argues that this knowledge came with the 2007 financial crisis when an excess of credit supply and lax requirements for taking out them resulted in a world crisis. For this reason, economists now know that monetary policy must consider financial markets' performance and even intervene when necessary with new instruments like quantitative easing, commercial bank reserve policies, asset purchases, and signaling games.
I like how the author, throughout this review of main events (and debates arising from them) of monetary policy history, teaches the reader the main paradigms of money-minders. I can mention some important ones, like the fact that nominal variables can only affect real variables in the short term and not in the long run. Another nice one is that monetary politicians have to be so careful when running a new policy because they always are dealing with trade-offs between variables (income-inflation is the classic example) and because they are not sure about unthinkable effects that may appear. Next, we have the importance of having models that attempt to predict the future to understand the most likely scenarios that lie ahead and to be able to plan to confront them. Finally, I must point out the writer's reflection about trust in models; he says that, in general, we should not be so confident in the models we have since we always tend to take them for granted until a crisis occurs that makes it necessary to look for new explanations.
The book uses technical concepts, models, and graphs that could be overwhelming for those who have never before read books on economics, so even when the author explains some of those, I think the reader will benefit most from the book if he is already familiar with some level of basic economic and monetary theory. In addition to that, I noticed a certain redundancy in ideas that were explained more than once; for example, the fact that monetary policy began to have a more active role with the responsibility to control shocks that divert national product from the government's goal was mentioned and explained in three different chapters.
In conclusion, the book fulfills its objective. Through a well-structured narrative, it first manages to explain the importance of having healthy currencies in our societies, and secondly, it succeeds in summarizing the great debates that have guided the evolution of monetary policy. I must mention that to get the most out of the second part mentioned, the reader should have some prior knowledge of economic and monetary theory (for example, understanding the Phillips curve and IS-LM curves, among other models; or know the difference between real and nominal variables), because otherwise it would be impossible to understand in depth the debates and arguments mentioned by the author.
This book has a clear objective that is explicit in its preface and is trying to serve the reader as a guide to the principles of monetary policy debate that has run throughout the years. Its author, Jagijt Chadha, a British economist with a recognized career in the macroeconomic field that has led him to be the current director of the National Institute of Economic and Social Research, knows about the complexity of this mission so much so that he considers it a “heroic task”. I think the book accomplishes this task by providing a structured historical summary of how monetary policy was born and how its paradigms have changed due to the social and economic milestones that humanity has faced.
The author starts by explaining the importance that monetary systems have had since ancient civilizations for the efficient performance of markets and, therefore, a consolidation of a strong state; so much so that some claim “sound money” as the “ultimate public good,” without which states could collapse. He remarks on the importance of the role of money in societies and of having an institution in charge of a monetary policy through interesting historical examples such as the central coinage system of Lydians that strengthened confidence in their currency, the loans used in Mesopotamia to smooth people's consumption, the paper money issues of Song dynasty China when bronze coins shortages, and the English crown's prohibition of banks from issuing money so as not to damage the functioning of the economy during the war with France.
The book then explains how the need for more flexible tools to intervene in the money supply, especially in times of crisis, and the appearance of periodic growth goals for governments ended the gold-based monetary system within the 20th century, although the long-term stability of prices associated with this system. The author considers the Great Depression as one important milestone that made it clear to economists that it is essential to pursue long-term real growth to have a healthy economy, laying the foundations of the countercyclical theory to achieve this; in addition, thanks to this event, Keynesian theories were born pointing to fiscal spending and aggregate demand as catalysts for growth. Another milestone pointed out by the writer was the World Wars, after which monetary policy started to have a more active role in the economy, moving from just standardizing the value of money to being accountable for the economic performance of nations. Since the post-war period, we can observe how central banks use interest rates and money issuing to affect the economy, pursuing growth and inflationary goals.
He shows how the Phillips Curve was one of the first models to help money-minders manage the trade-off between economic growth and inflation because they seemed to have a positive association to care about. But the 1970s stagnation casts doubt on this model because the world was observing high inflation and low levels of growth at the same time, leading to the addition of complexities to the same model, for example, expectations for the future, which affect the present behavior of agents, and the appearance of scientific approaches like the feedback rule. The story continues with the late 20th century debate of central banks' independence, resulting in the majority of them increasing their level of autonomy to have more credibility in their commitment to pursue price stability.
Finally, the book brings us back to the 21st century, explaining how economists started to mind the importance of having a healthy financial system to achieve economic stability. The author argues that this knowledge came with the 2007 financial crisis when an excess of credit supply and lax requirements for taking out them resulted in a world crisis. For this reason, economists now know that monetary policy must consider financial markets' performance and even intervene when necessary with new instruments like quantitative easing, commercial bank reserve policies, asset purchases, and signaling games.
I like how the author, throughout this review of main events (and debates arising from them) of monetary policy history, teaches the reader the main paradigms of money-minders. I can mention some important ones, like the fact that nominal variables can only affect real variables in the short term and not in the long run. Another nice one is that monetary politicians have to be so careful when running a new policy because they always are dealing with trade-offs between variables (income-inflation is the classic example) and because they are not sure about unthinkable effects that may appear. Next, we have the importance of having models that attempt to predict the future to understand the most likely scenarios that lie ahead and to be able to plan to confront them. Finally, I must point out the writer's reflection about trust in models; he says that, in general, we should not be so confident in the models we have since we always tend to take them for granted until a crisis occurs that makes it necessary to look for new explanations.
The book uses technical concepts, models, and graphs that could be overwhelming for those who have never before read books on economics, so even when the author explains some of those, I think the reader will benefit most from the book if he is already familiar with some level of basic economic and monetary theory. In addition to that, I noticed a certain redundancy in ideas that were explained more than once; for example, the fact that monetary policy began to have a more active role with the responsibility to control shocks that divert national product from the government's goal was mentioned and explained in three different chapters.
In conclusion, the book fulfills its objective. Through a well-structured narrative, it first manages to explain the importance of having healthy currencies in our societies, and secondly, it succeeds in summarizing the great debates that have guided the evolution of monetary policy. I must mention that to get the most out of the second part mentioned, the reader should have some prior knowledge of economic and monetary theory (for example, understanding the Phillips curve and IS-LM curves, among other models; or know the difference between real and nominal variables), because otherwise it would be impossible to understand in depth the debates and arguments mentioned by the author.
November 6, 2024
The Money Minders: How central bankers look after our money, from the time of Croesus, up to the Covid pandemic.
Professor Jagjit Chadha, the Director of the National Institute of Economic and Social Research, has previously worked at the Bank of England, and as Chief Quantitative Economist at BNP Paribas. He understands the murky world of the plumbing of the modern financial system (few people do) and has authored a book about how what is now known as central banking evolved – in a mere 200 pages.
The book tells the story of money and how it is overseen, from the 6th century BC to the Covid pandemic. The author starts off with a series of ‘short stories’ that plot this history; he tells us how Croesus became the richest man in the world thanks to the purity of Lydia’s coinage, how Babylonian mathematics allowed the calculation of interest and the growth of lending, how Chinese use of paper money helped the expansion of trade, how Isaac Newton struggled with the transition from a bi-metal monetary system to one where gold dominated, all before we get to the 20th century, and the post-WW1 Slump and Great Depression. The debate between the ‘Classical’ and ‘Keynesian’ views of the economy leads to a revolution in policymaking, but also to “fine tuning out of control’” as economists begin to think more like engineers. From the money multiplier, the IS/LM framework, the Phillips curve, and expectations (rational or otherwise), we head towards inflation-targeting central banks. And then just as the modern central bankers thought they had tamed inflation, along came the Great Financial Crisis. New instruments of monetary policy have had to be created and now the engineers must understand the plumbing of the financial system, too. The book ends during the covid crisis, pondering the implications of the unorthodox policies put in place to help the economy survive it. The author pleads for the money minders to do no harm.
The historical context helps us understand the evolution of “Money Minding.” Describing Croesus as the first big beneficiary of ‘seignorage’ puts the Lydian lion up there with the US dollar in affording ‘exorbitant privilege’ to those who control it. I was worried that such a short historical section would be an unnecessary diversion instead of which, it is a wonderful way to understand the journey from barter to a complex global monetary system without getting lost along the way. The evolution of money has allowed economies to develop, and management of money has had to keep up. The evolution of economics since WW2 is also easier to understand when we see how it happened. From the IS/LM curve and the debate between ‘Classical’ and ‘Keynesian’ economics, we go through the Philips curve, which was beautiful until it was not, and the focus on expectations that has been so influential in recent decades, understanding how the journey happened makes understanding the equations and models easier, somehow!
The second half of the book focuses on how we reached a point where central banks were independently tasked with keeping inflation under control and looking after the monetary system. The author rolls up his sleeves and shows us just how well he understands that system. Paul Tucker describes the book as ‘a primer on money-credit theory and practice for the interested generalist.’ It will also help financial market participants understand that there is more to central banking than the setting of interest rates. Money market operations and unorthodox policy actions (QE, QT, and the like) are just as important. There are two epilogues, one on forecasting (useful but not to be taken too literally) and the second on the response to Covid. How central banks and governments collaborate in times of crisis is important but recognizing the danger to global monetary plumbing and dealing with it swiftly shows that the central bankers have learnt to be plumbers, too.
This book really helped me understand how ‘money minding’ evolved in a way that was fun to read. I did, however, feel that the analysis of the Financial Crisis in 2007/2008 let regulators off the hook. The debate in the years before the crisis was about whether an inflation-targeting central bank should ‘lean against’ rapidly rising asset prices to avoid them becoming bubbles or stick to inflation targeting. Bank of England Chief Economist Charlie Bean, at a BIS conference in 2003, argued in favor of ignoring the asset boom and focusing on mitigating the fallout. History has not been kind to that conclusion. Were central bankers paying much more attention to inflation targets than the safety of the financial system? Surely, the job of the ‘Money Minders’ is about more than targeting inflation on the back of what macro-economic models suggest could happen?
Professor Jagjit Chadha, the Director of the National Institute of Economic and Social Research, has previously worked at the Bank of England, and as Chief Quantitative Economist at BNP Paribas. He understands the murky world of the plumbing of the modern financial system (few people do) and has authored a book about how what is now known as central banking evolved – in a mere 200 pages.
The book tells the story of money and how it is overseen, from the 6th century BC to the Covid pandemic. The author starts off with a series of ‘short stories’ that plot this history; he tells us how Croesus became the richest man in the world thanks to the purity of Lydia’s coinage, how Babylonian mathematics allowed the calculation of interest and the growth of lending, how Chinese use of paper money helped the expansion of trade, how Isaac Newton struggled with the transition from a bi-metal monetary system to one where gold dominated, all before we get to the 20th century, and the post-WW1 Slump and Great Depression. The debate between the ‘Classical’ and ‘Keynesian’ views of the economy leads to a revolution in policymaking, but also to “fine tuning out of control’” as economists begin to think more like engineers. From the money multiplier, the IS/LM framework, the Phillips curve, and expectations (rational or otherwise), we head towards inflation-targeting central banks. And then just as the modern central bankers thought they had tamed inflation, along came the Great Financial Crisis. New instruments of monetary policy have had to be created and now the engineers must understand the plumbing of the financial system, too. The book ends during the covid crisis, pondering the implications of the unorthodox policies put in place to help the economy survive it. The author pleads for the money minders to do no harm.
The historical context helps us understand the evolution of “Money Minding.” Describing Croesus as the first big beneficiary of ‘seignorage’ puts the Lydian lion up there with the US dollar in affording ‘exorbitant privilege’ to those who control it. I was worried that such a short historical section would be an unnecessary diversion instead of which, it is a wonderful way to understand the journey from barter to a complex global monetary system without getting lost along the way. The evolution of money has allowed economies to develop, and management of money has had to keep up. The evolution of economics since WW2 is also easier to understand when we see how it happened. From the IS/LM curve and the debate between ‘Classical’ and ‘Keynesian’ economics, we go through the Philips curve, which was beautiful until it was not, and the focus on expectations that has been so influential in recent decades, understanding how the journey happened makes understanding the equations and models easier, somehow!
The second half of the book focuses on how we reached a point where central banks were independently tasked with keeping inflation under control and looking after the monetary system. The author rolls up his sleeves and shows us just how well he understands that system. Paul Tucker describes the book as ‘a primer on money-credit theory and practice for the interested generalist.’ It will also help financial market participants understand that there is more to central banking than the setting of interest rates. Money market operations and unorthodox policy actions (QE, QT, and the like) are just as important. There are two epilogues, one on forecasting (useful but not to be taken too literally) and the second on the response to Covid. How central banks and governments collaborate in times of crisis is important but recognizing the danger to global monetary plumbing and dealing with it swiftly shows that the central bankers have learnt to be plumbers, too.
This book really helped me understand how ‘money minding’ evolved in a way that was fun to read. I did, however, feel that the analysis of the Financial Crisis in 2007/2008 let regulators off the hook. The debate in the years before the crisis was about whether an inflation-targeting central bank should ‘lean against’ rapidly rising asset prices to avoid them becoming bubbles or stick to inflation targeting. Bank of England Chief Economist Charlie Bean, at a BIS conference in 2003, argued in favor of ignoring the asset boom and focusing on mitigating the fallout. History has not been kind to that conclusion. Were central bankers paying much more attention to inflation targets than the safety of the financial system? Surely, the job of the ‘Money Minders’ is about more than targeting inflation on the back of what macro-economic models suggest could happen?
April 13, 2023
Although it is not an easy reading, at least for someone without an economic background, the book is able to make a vivid impression of the time-complexity surrounding monetary policy-making (either backward-looking, forward-looking or hybrid), the wide array of factors to be taken into account, the models (and their shortcomings) involved, all summed up in the parables, trade-offs and lags which Jagjit Chadha shares with educated cultural references.
Finally, I would also like to stress a key takeaway which I keep from this reading: it’s really impressive how monetary policy evolved from a regular (and boring?) money minding (housekeeping, one might be tempted to call) task to the center-stage of economic policy and debate, particularly in the aftermath of the Great Financial Crisis. This raises a lot of questions, but I would like to highlight just two: one economic question, on how the ‘hangover’ following QT will develop, and one legal question, regarding for how long it will be possible to sustain that central banks are not acting ‘ultra vires’, and lacking a clear democratic ground.
Only time will tell and all forecasts have their shortcomings (as Chadha points out in of two marvelous final essays), but I believe that times of turmoil may lie ahead…
Finally, I would also like to stress a key takeaway which I keep from this reading: it’s really impressive how monetary policy evolved from a regular (and boring?) money minding (housekeeping, one might be tempted to call) task to the center-stage of economic policy and debate, particularly in the aftermath of the Great Financial Crisis. This raises a lot of questions, but I would like to highlight just two: one economic question, on how the ‘hangover’ following QT will develop, and one legal question, regarding for how long it will be possible to sustain that central banks are not acting ‘ultra vires’, and lacking a clear democratic ground.
Only time will tell and all forecasts have their shortcomings (as Chadha points out in of two marvelous final essays), but I believe that times of turmoil may lie ahead…
May 22, 2022
That's a great book for those who are interested in central banks/central banking/central bankers.
Displaying 1 - 4 of 4 reviews