Central Bank

Central Banks are often nominally owned by private individuals or, as in the United States, jointly by private banks; but they are always directed by government-appointed officials, and serve as arms of the government. Where they are privately owned, as in the original Bank of England or the Second Bank of the United States, their prospective profits add to the usual governmental desire for inflation.

— Murray Rothbard; What Has Government Done to Our Money?

A Central Bank attains its commanding position from its governmentally granted monopoly of the note issue. This is often the unsung key to its power. Invariably, private banks are prohibited from issuing notes, and the privilege is reserved to the Central Bank. The private banks can only grant deposits. If their customers ever wish to shift from deposits to notes, therefore, the banks must go to the Central Bank to get them. Hence the Central Bank’s lofty perch as a “bankers’ bank.” It is a bankers’ bank because the bankers are forced to do business with it. As a result, bank deposits became redeemable not only in gold, but also in Central Bank notes. And these new notes were not just plain bank notes. They were liabilities of the Central Bank, an institution invested with all the majestic aura of the government itself. Government, after all, appoints the Bank officials and coordinates its policy with other state policy. It receives the notes in taxes, and declares them to be legal tender.

As a result of these measures, all the banks in the country became clients of the Central Bank.12 Gold poured into the Central Bank from the private banks, and, in exchange, the public got Central Bank notes and the disuse of gold coins. Gold coins were scoffed at by “official” opinion as cumbersome, old-fashioned, inefficient—an ancient “fetish,” perhaps useful in children’s socks at Christmas, but that’s about all. How much safer, more convenient, more efficient is the gold when resting as bullion in the mighty vaults of the Central Bank! Bathed by this propaganda, and influenced by the convenience and governmental backing of the notes, the public more and more stopped using gold coins in its daily life. Inexorably, the gold flowed into the Central Bank where, more “centralized,” it permitted a far greater degree of inflation of money-substitutes.

— Murray Rothbard; What Has Government Done to Our Money?

In addition to removing the checks on inflation, the act of establishing a Central Bank has a direct inflationary impact. Before the Central Bank began, banks kept their reserves in gold; now gold flows into the Central Bank in exchange for deposits with the Bank, which are now reserves for the commercial banks. But the Bank itself keeps only a fractional reserve of gold to its own liabilities! Therefore, the act of establishing a Central Bank greatly multiplies the inflationary potential of the country.

— Murray Rothbard; What Has Government Done to Our Money?

In very simple terms, the central banks of the world can only do two things. They are:

<ol>
<li>Create money out of thin air, just like the rules of Monopoly allow—something they are doing today by the trillions.</li>
<li>Lend money they do not have. When you borrow money from a bank, the bank does not need to have that money in the vault.</li>
</ol>

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

Before central banks, such as the Federal Reserve, many smaller banks issued their own money. Many of these banks went bust when they got greedy and began lending out much more fractional receipt money than they had in gold, silver, and gems in their vaults, and they were unable to cover withdrawal requests. This is one reason why central banks, such as the Bank of England and the Federal Reserve, were created. They wanted only one form of money—their money—and they wanted to regulate the fractional reserve system.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

Back in 1791, Thomas Jefferson was very much against a central bank for the very reasons we are all experiencing today. It was Jefferson who pointed out that the Constitution did not grant to Congress the power to create a bank or anything else. He went on to say that even if the Constitution had granted such a power, it would be an extremely unwise thing to utilize because allowing banks to create money could only lead to national ruin. In fact, it was not uncommon for Jefferson to compare banking to the dangers of standing armies.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

I have one final point about history. The Founding Fathers opposed central banks like the Federal Reserve. President George Washington experienced the pain of government-made money when he had to pay his troops with the Continental, a currency that eventually went to its true value—zero. Thomas Jefferson adamantly opposed the creation of a central bank. Yet today central banks control the financial world, and we've granted them the power to solve our financial crisis for us, the very crisis they helped create.

— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich