Quantitative easing through the prism of the Barings crisis in 1890: central banks and the international money market

Abstract

This article investigates the response of the Central Bank at the center of the network of international money markets in times of crisis. The Bank of England's response to the impending collapse of the Barings Bank in 1890 involved not just a bank-brokered loan guarantee but also a change in the rules and manner of intervention in the market for bill discounting that constituted a significant element of the unregulated money market of the time. Quantitative easing in the current context also marks the attempt by the Federal Reserve to tame the shadow banking system by intervening directly in these markets. Based on this historical analogy, we draw some lessons about the nature and limitations of central bank response.

Keywords:

• Quantitative easing
• central bank policy
• Minsky