Blurring the Borders. How the Central Banks of the European Neutrals During the First World War Became Part of the State Machinery: Examining the Case of Norway

Abstract

This article analyses the relationship between the central banks and governments in the neutral countries during the First World War, with focus on the Norwegian development. It examines how independence was challenged, and the framework is a concept of central bank independence, which regards non-lending to the state as vital to the functioning of the central banks. This is a novel approach to the development during the war as the perspective has barely been discussed in the literature in Norway, and also seems to be disregarded in the standard international literature on central bank development. From this perspective the article argues that the Norwegian central bank’s pre-war independence was substantial compared to other central banks. Moreover, the distinct borders between central bank and government also safeguarded Norges Bank’s autonomy longer than in comparable countries after the outbreak of war. However, by the end of the war, Norges Bank had become one of the neutral central banks most interwoven with the state. Based on the historical development in different countries, the article questions the notion of the standard literature that lending to the state in a crisis was a central bank duty.