9. Summary and Conclusion

This thesis presents an analysis of the extent to which De Nederlandsche Bank (DNB) developed into a central bank during the first four decades of its existence and explains the reasons for that development. In order to address the question of how DNB developed into a central bank, first a definition of a central bank is necessary. Normally central banks are defined by what they do. The defining functions of a central bank in the early nineteenth century were that of being: (1) the monopolist issuer of banknotes, (2) the government’s bank and (3) the lender of last resort. The general theoretical picture (outlined in Chap. 2) is that over time, either by political decision or through market forces, the phenomenon and role of a bankers’ bank emerged, which towards the end of the nineteenth century became a reserve bank, thus enabling it to play a role in the management of exchange rates under the gold standard. The monopoly of central banks as issuers of banknotes is generally emphasised by proponents of the free banking school. For Goodhart last resort lending is the defining function of a central bank. Lending of last resort required the central bank to give up profit maximisation because it had to hold excess reserves and it had to be non-competitive in order to solve potential conflicts of interest. That is why government should play a role in establishing this central bank function.