Central Banking, Shadow Banking, and Infrastructural Power1
This chapter is concerned with the economic and political connections between the institutionalization of central bank dominance and the rise and resilience of shadow banking. It argues that shadow money markets have come to serve as the governance infrastructure for central banks. The chapter shows that central banks have acted as decisive catalysts for the crucial development at the heart of financialization: the rise of shadow money and shadow banking. It explains how infrastructural entanglement and power played out in the US and in the euro area. The literature on the history of money and finance shows that financial innovation is often driven by the interaction between banking and central banking. The chapter discusses the implications for the specific case of shadow money, defined as quasi-monetary liabilities created in the shadow banking system. Since the onset of modern central banking in the late nineteenth century, the share of the burden of macroeconomic stabilization carried by monetary policy has greatly increased.