The birth of inter-war central banks – building a new monetary order

Bank of Greece (their central bank) organised a fascinating looking conference on its 90th anniversary. The conference theme was: The birth of inter-war central banks – building a new monetary order.

It is really nice to review central banking history from an inter-war period angle as quite a few banks emerged during the period: South Africa, Greece, India, New Zealand etc. Interesting to see Prof Balachandran, the main author of the 2nd RBI History Volume, presenting a paper titled: Central banking and colonial control: India, c. 1914-39. Looking forward to reading all the papers especially the one by Prof Balachandran.

The welcoming remarks by Yannis Stournaras, Governor of Bank of Greece, gives a preview of their history. It is not very different from Indian story:

It is my great pleasure to welcome you to this international conference, devoted to the Birth of inter-war central banks, organised by the Bank of Greece, itself one of the offspring of this institutionally fertile period.

It was 1926 when the Greek government first approached the Financial Committee of the League of Nations, seeking its help to settle old debts and raise a new loan on international markets. The money was needed quite urgently. After a decade of wars, which had culminated in the abortive Asia Minor campaign and the forced population exchange of 1922, the Greek economy needed an injection of capital to heal its wounds, settle its refugees and build up its economic infrastructure. Yet its international credit standing lay in tatters; wartime obligations remained unsettled; expenditures far outstripped public revenues; inflation was soaring, and the drachma had lost more than 90% of its value.

The League of Nations, relying heavily on input from the Bank of England and the Treasury, promptly dispatched a group of experts to study the Greek situation and report back to Geneva. Their report was published in 1927. Along the inevitable admonitions about fiscal prudence and administrative reform, the foreign experts highlighted the absence of a modern central bank: an institution charged solely with the conduct of monetary policy, free from political or business interference. The sole note-issuing authority at the time was the National Bank of Greece (or Ethniki, as most in this audience know her). But Ethniki also happened to be the country’s largest commercial bank, with strong ties to business and politics. If Greece were to re-join the gold standard and thus return to the fold of ‘stable’ countries, the National Bank would have to give up its commercial operations and focus exclusively on central banking – or so the League argued, at least.

The report was not well received. Neither by Greek politicians, who lamented foreign interference in the country’s domestic affairs; nor by the National Bank itself, which faced the prospect of giving up its most profitable line of business. After several months of acrimonious negotiations, a compromise was finally struck: the National Bank would maintain its commercial activities and cede responsibility for monetary policy – along with all corresponding assets and liabilities – to a new institution, which would simply be called the Bank of Greece.

And so it was. With a League of Nations Protocol as its birth certificate, the new bank began its operations in the spring of 1928. The product of an unpalatable deal to obtain much needed foreign credit, the bank was greeted with scepticism, if not outright animosity at first. 

Keynes and others had suggested to convert then Imperial Bank into a central bank. But the idea was not well received. This led to formation of a new entity which was called Reserve Bank of India.

Then Great Depression happened and Greece like others got into trouble challenging the new central bank.


For the Greek experience was hardly unique: the 1920s and 1930s witnessed the creation of a string of new central banks, across several countries. More often than not, their birth was midwifed by ‘money doctors’ from the Bank of England, the Banque de France or the Federal Reserve: people such as Niemeyer, Siepmann or Strakosh, whose names litter the archives of many inter-war central banks, including that of the Bank of Greece. Some of the new institutions were established to exorcise wartime inflation and restore access to credit; others were born out of the dissolution of empires, or the weakening of ties to imperial colonies; all of them reflected an attempt to ‘return to normalcy’, by rebuilding an international monetary order and restoring cooperation in the aftermath of a devastating world war.

This ‘return to normalcy’ proved an illusion. The Great Depression soon challenged the viability of this order and forced many of the new-born institutions to re-evaluate their priorities and their relationship to the state and with each other. The questions facing each one were similar; the answers they gave – less so. Over the next two days, fifteen prominent scholars from eleven countries will present their work on different institutional or national experiences in the inter-war years; I thank them for being here and look forward to listening to their contributions.

I would also like to thank the Centre for Culture, Research and Documentation of the Bank of Greece, and its Director, Mr. Panagiotis Panagakis. Our economic historian and Scientific Advisor to the Historical Archive, Mr. Andreas Kakridis, who is the heart and soul of the conference. The staff at my Office, our valuable Communication Section, the security officers, as well as numerous other colleagues at the Bank of Greece, without whom this conference would not be possible.

The Bank of Greece is committed to promoting historical research, particularly research in economic history. Yet the past is most interesting when it informs our understanding of the present and future. Policy reactions to the recent financial crisis were shaped by perceptions – and often misperceptions – of the past, particularly the inter-war years. In this context, I am also pleased to welcome several of my esteemed colleagues from other European central banks, who are joining us for this conference. Their presence honours us and underlines the connection to the present and future of central banking. We will have much more time to talk about this later today, during our panel discussion.

But first, let us turn our gaze to the past and start our journey through the inter-war years. I wish everyone a fruitful conference and look forward to stimulating discussions!

Really nice to read all this. Good to see Bank of Greece willing to learn from history and making others learn too….

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