Financial flows and financial structures are fueling climate instability and worsening inequities around the world. A stable future now requires urgent change including transformative financial innovations. Yet the pandemic and recent financial disruptions reveal how financial architecture designed to promote stability in times of crises exacerbates economic inequities and vulnerabilities. Recognizing the division in climate politics among those advocating for stable policies and a smooth transition and those calling for more radical, disruptive politics, this chapter reviews the critical role of financial innovations, including central banks’ monetary policies, in redirecting society toward a more just and stable future. We propose a paradigm shift to reconceptualize stability and politicization in finance and central banking for climate justice. We argue that current depoliticized perspectives on financial stability are worsening climate instability, and that finance, central banks, and their monetary policies are an underappreciated part of climate politics. Transformative climate policy to promote stability requires repoliticizing finance and financial innovations.

This chapter deals with the history of money in ancient times. We start with ancient Mesopotamia, where fundamental value (silver and barley) was stored in temples. Clay tablets circulated openly, supporting fundamental value and contractual arrangements. Coinage in ancient Greece and Rome was a step forward in terms of ease of use but involved the risk of debasement – reduction of the content of precious metals. We describe debasement of coins from the late Roman empire to the Middle Ages, then move to China, where the first banknotes were printed in the early part of the second millennium. The use of paper in finance spread to Europe, where it became the key technology supporting the rise of banks in the late Middle Ages and the Renaissance. We describe the rise of central banks in Europe, starting from Sweden and ending with Germany and Italy. We draw several lessons from these experiences. The main one is that a successful money is a private–public partnership, where “public administration” and “private interest” combine and complement each other. The chapter ends with the birth of telecommunication in the nineteenth century and its early applications at the beginning of the twentieth century, which gave rise to radical changes in monetary technology in the subsequent period.

This chapter wraps up the arguments and delineates possible avenues ahead for central banks. Central banks may become Banks of the State, financing government deficits as they have done recently. This may imply a retreat from central bank independence. With large holdings of public securities in central bank balance sheets, the pressure to finance governments would increase. Another option is for central banks to change their job profile, becoming Banks for Everybody. This would happen if they decided to issue all-purpose retail central bank digital currencies. This would risk weakening private initiative in the payment industry, a sector where private markets have worked well recently. The third avenue is for central banks to remain Banks of the Banks, the dominant model that prevailed until the Great Financial Crisis of 2008–09. Central banks would continue to exert rigorous surveillance and use their regulatory powers to encourage further progress and foster efficiency and stability in the underlying settlement infrastructures. We express support for this line but also highlight some challenges, first and foremost the regulation of crypto assets and the extension of safety nets and central bank competence on “shadow banking,” the growing unregulated segment of financial markets.

This chapter deals with “digital cash.” A central bank digital currency (CBDC) is a liability of the central bank toward a nonbank holder – an individual or a company. The technology, a web of interconnected computer terminals, is widely available. Central banks already host deposits from banks, so technically the CBDC would only be an extension. From an economic and financial standpoint, however, there is major difference, because the opening of the central bank balance sheet to the public would tend to lead to bank disintermediation. Banks extend the credit to households and firms; bank disintermediation therefore has a contractionary effect on credit and economy growth. This effect is stronger in financial crises, in which deposit holders tend to shift massively toward “safe assets.” A CBDC risks constituting a channel of deposit runs. Some central banks, therefore, plan to apply strict quantitative limits. There is a trade-off here: The stricter the limits, the lower the significance and usefulness of the CBDC. By and large, global central banks are still grappling with these problems, and research is ongoing. The limited experience of countries that have already launched a CBDC (China, Nigeria, Bahamas) is not positive. There has been very little demand for CBDCs because they provide very little value added over existing private means of payment. The jury is still out as to whether the most important central banks (Federal Reserve, European Central Bank, etc.) will actually go ahead and issue CBDCs.

Michael Mann’s concept of infrastructural power is increasingly invoked to grapple with how state capacity has been leveraged upon processes of financialization since the 1970s. Yet while furnishing new insights about state–market hybridity, the literature risks transforming “infrastructural power” into a synonym for financialized state agency. This chapter restores the intended scope of Mann’s concept by situating it within his Sources of Social Power quadrilogy. It then surveys the concept’s applications in interdisciplinary finance studies and proposes three ideal types of infrastructural power: instrumental, communicative, and network-forming. These types are illustrated with historical and contemporary examples to highlight the historical depth and diversity of infrastructural powers in financial governance. The conclusion addresses the concept’s limitations for identifying whether public or private actors hold greater power in financial governance.

After a brief introduction to the outbreak of the Austrian Credit Anstalt crisis in May 1931 and the early response by central bankers from Bank of England, the BIS and the New York Federal Reserve Bank, this chapter proceeds to present the book’s overall issues and main concepts, which will be used as a heuristic framework throughout the narrative. The main concepts of the book are radical uncertainty, sensemaking, narrative emplotment, imagined futures and epistemic communities. In the chapter, I discuss how these concepts are helpful in understanding central bankers’, and other actors’, decision-making and practices in the five month from May through September. The chapter also discusses my analytical strategy and presents the empirical material, which comes from the Bank of England, Bank for International Settlements, the Federal Reserve Bank of New York, the J.P. Morgan Archive, the Rothschild Archive and a few others. At the end of the chapter, I present the structure of the book.

If political independence provided Africans more latitude in how to pursue economic sovereignty, it hardly settled the matter of how it should be institutionalized. Debates about currency, for instance, persisted in East Africa after formal decolonization, and only in 1965-66 was the colonial money replaced by money issued by the independent states. This chapter traces the unexpected trajectory of decolonization, including the persistence of the imperial East African Currency Board. Decisions about the postcolonial monetary regimes were delayed, in part, by the machinations of British officials who tried to protect the racial capitalism of East Africa from the challenge of African independence. Yet, the establishment of national currencies and central banks was also delayed by Africans’ own commitment to supranational linkages, including an East African common market and currency. This chapter shows that the fortunes of a proposed East African Federation rose and fell on the dynamics of uneven and combined development in the region. And, finally, it examines how the central banking model adopted by postcolonial leaders reinforced the dependence of their nations on the accumulation of foreign currencies. The “moneychanger state,” in which postcolonial governments intermediated between domestic and foreign currencies, was critical to their own survival and ideas about development. Ultimately, though, it was the rural cultivators who would bear the burden of maintaining national solvency, a material reality that spurred a productivist ideology in which merit was revealed through earning export value.

We start it with a brief historical overview about the emergence of independent central banks in Chapter 1. The chapter looks at different historical periods to work out ways to secure price stability that have been chosen in the past.

Chapter 1 introduces the reader to macro-prudential policy and exposes the reader to the problem of persistently instable financial markets, which raise the question of if and how far the macro-prudential regulatory program post-crisis had any effect. In contrast to binary paradigm shift views, which see no to little change, I introduce a multidimensional view of regulatory change that can detect massive change in the economic ideas underlying financial regulation, while pointing to the administrative and political limitations that prevent these ideas from becoming fully performative. Pointing to these contradictions, the chapter introduces the analytical framework and the main contributions of the book, followed by an outline of the different chapters.