A long-run shift in central banking is traced from public financing toward private-sector credit beginning in the 18th century. Before the 19th century, nearly all central banks financed government spending; over time direct government financing became taboo and discounting commercial bills of exchange grew more common. This study links that change to political coalitions rather than to purely structural economic forces.

🔎 New dataset: 69 central banks, 1600–1914

• Original data collection documents central banks established between 1600 and 1914 (n = 69).
• Coding captures whether banks financed government spending or discounted commercial bills of exchange and how those policies evolved over time.

📊 How the evidence was tested

• Statistical tests rely on discrete-time survival analysis to model changes in central bank credit policies over the early modern and modern periods.
• The analysis evaluates whether political coalitions or structural economic factors better predict adoption of different credit practices.

🔑 Key findings

• The composition of a government’s supporting coalition predicts central bank credit policy more strongly than structural economic forces.
• Security-minded interest groups (e.g., creditors tied to the state) are associated with the establishment of central banks that lend back to government or allied actors.
• Economic interest groups (e.g., commercial creditors and merchants) are associated with central banks that expand discounting of commercial bills of exchange.
• Discrete-time survival models provide statistical support for these relationships across the 1600–1914 sample.

🌍 Why this matters

• Political-historical context and the preferences of specific interest groups shaped the long-term evolution of central banking institutions.
• Understanding these political drivers clarifies why central banks moved away from direct government finance and toward instruments favoring commerce, with implications for interpreting central bank mandates and interests over time.