There are at least three other roles of central banks that are less considered. One is the distributive role of central bank policy. Central banks' policies can have differential impacts on different classes and groups: workers and capitalists, debtors and creditors, finance and industry, those operating in traded and non-traded goods. For linking this to the political economy of central banking, for example, bankers may oppose expansionary monetary policy because it might lower real interest rates and raise inflation, whereas workers and industrialists may prefer loser policy.
A second less-known role is the political role of central banks. These days, this role is primarily discussed in the context of whether or not the central bank is independent of the government (as opposed to being integrated into the government) with a focus, primarily, on the impact of central bank 'independence' on inflation. But the political role of central banks is much more multi-faceted than this.
During the period of decolonisation following the Second World War, it was recognised that by promoting financial unification, central banks can play an important political role in helping establish national sovereignty and unity. More recently, central banks which are relatively independent from the government, often represent and promote particular interests, constituencies and ideologies in public and private spheres and thereby affect the colour and tenor of overall political debate over economic policy (Epstein, 1982). In recent times, these have often been aligned with those in financial circles, including external actors like the IMF, in promoting financial liberalisation, inflation targeting and the elimination of capital controls. By contrast, central banks that are more integrated into the government are more likely to promote policies and procedures that are framed more closely by government priorities and reigning ideologies.
A third under-appreciated role is the allocative role: Central bank policy can deliberately or inadvertently affect the profitability and access to credit of different industries. This developmental role is currently under-emphasised, relatively to the other two.
In short, historically central banks have played many and diverse roles. Central banks have accumulated these roles in fits and starts, some first as private, government connected banks and some as 'proper' public institutions. In any event, it is clear that the neo-liberal version of central banking has picked a highly truncated version of this list.
FUTURE ROLE OF CENTRAL BANKS: Capital, liquidity and leverage ratios, the traditional focus of stabilisation has been the central bank's capacity to lend, and thus to create liquidity, either to an individual bank, as the lender of last resort, or to the market as a whole, via open market operations. Â
One of the attractions, to many economists and others, of the standard inflation targeting regime was that the choice of interest rates could be made independent of the government, in order to achieve an objective democratically mandated. The analogy, which Perotti (2010) makes, is with the inflation tax and seigniorage. There is a temptation for politicians to make excessive use (from an overall social welfare standpoint) of the inflation tax. The systemic supervisor in each country will have to engage with their own government to get the appropriate pattern of sanctions (and taxes) applied. Regulators have consistently tried to avoid such an engagement. That should not continue.
DEBT MANAGEMENT:Â For over three centuries (1694-1997), a prime function of the Bank of England was to manage the national debt. But as that debt declined, both as a percentage of GDP and in relation to the size of the financial market, debt operations became simpler and standardised, falling into a routine pattern. Much the same happened in other countries.
BANK RESOLUTION: A central bank can only provide liquidity; it cannot provide capital. If liquidation of a failing bank cannot be allowed and the market will not provide more capital, then the only remaining recourse is to taxpayer funding.
INTEREST RATE SETTING:  Many have argued that liquidity management is integral to the management of systemic stability and the essential core of the operation, and raison d'être, of a central bank. Â
INTERACTIONS WITH OTHER REGULATORS/SUPERVISORS:Â The regulator in charge of systemic stabilisation should also be a direct supervisor of the main systemic financial intermediaries.
STRUCTURAL DEVELOPMENT IN FINANCIAL SECTOR: There was direct government intervention in the financial sector from 1930s to the 1960s.
CENTRAL BANK OF BANGLADESH: After the liberation war and the eventual independence of Bangladesh, the government of Bangladesh reorganised the Dhaka branch of the State Bank of Pakistan as the central bank of the country, and named it the Bangladesh Bank (BB). This reorganisation was done pursuant to the Bangladesh Bank Order, 1972, and the Bangladesh Bank came into existence with retrospective effect from December 16, 1971. The regime then adopted a pro-socialist agenda. In 1972, the government decided to nationalise all banks in order to channel funds to the public sector and to prioritise credit to those sectors that sought to reconstruct the war-torn country - mainly industries and agricultural sectors. This was compounded by the fact that loans were handed out to the public sector without commercial considerations, that banks had poor capital base, provided poor customer services and didn't have any market-based monetary instruments. But mostly, because loans were given out without commercial sense, and because they took a long time to call a loan non-performing, and once they did so, recovery under the erstwhile judicial system was so expensive that their loan recovery was abysmally poor.
While the government made a point of intervening everywhere, it didn't set up a proper regulatory system that would diagnose such problems and correct them. (See the table)
Jamaluddin Ahmed, PhD, FCA, is the Director of Emerging Credit Rating Ltd and Vice-President, the Bangladesh
Economic Association.
 jamal@emergingrating.com