Central banks are much older than fiat money. They weren’t originally set up for purely macroeconomic reasons, but also for political reasons. Governments need to borrow, and that means they need institutions to help manage the flow of capital. Even if in the long run they have enough income, need liquid assets to meet funding needs—hence, promissory notes and paper money. Having a government-organized bank helps manage this too.
Some examples: The Bank of England dates to the War of the Triple Alliance in the 1690s, when William III needed to raise money. Likewise, the Second Bank of the United States was set up in response to a Federal funding crisis during the War of 1812. The Bank of France was set up by Napoleon.
Governments can borrow or issue paper money without a central bank—the US did from the 1830s until 1914 -- but it has inconveniences. For example, the government has to make payments, and that means there has to be some interface between the treasury and the banking system. Having the government put its treasury in assorted commercial banks was felt to be corrupting—too easy for treasury officials to collude with the pet banks.
Central banks are much older than fiat money. They weren’t originally set up for purely macroeconomic reasons, but also for political reasons. Governments need to borrow, and that means they need institutions to help manage the flow of capital. Even if in the long run they have enough income, need liquid assets to meet funding needs—hence, promissory notes and paper money. Having a government-organized bank helps manage this too.
Some examples: The Bank of England dates to the War of the Triple Alliance in the 1690s, when William III needed to raise money. Likewise, the Second Bank of the United States was set up in response to a Federal funding crisis during the War of 1812. The Bank of France was set up by Napoleon.
Governments can borrow or issue paper money without a central bank—the US did from the 1830s until 1914 -- but it has inconveniences. For example, the government has to make payments, and that means there has to be some interface between the treasury and the banking system. Having the government put its treasury in assorted commercial banks was felt to be corrupting—too easy for treasury officials to collude with the pet banks.