TOWARDS SOUND MONETARY INSTITUTIONS

Most people see money and central banking as shrouded by an impenetrable veil of mystery, as matters that ought to be delegated to expert economists in central banks. Yet the actual performance of central banks has been less than stellar. And there are good reasons to expect unchecked, discretionary monetary policy by central bankers to produce less‐than‐perfect results. Not only do central bankers not have the right incentives and knowledge to make beneficial discretionary decisions, but the economy does not always behave in a predictable fashion, reacting as an automaton to discretionary policy shifts. A market‐based monetary arrangement – such as Friedrich von Hayek's free banking proposal – would be preferable to a national or supranational monopoly on the issue of money. If such an arrangement is not attainable, then it is desirable, at the very least, that the behaviour of central bankers is constrained by rules, such as nominal income growth targets.