Composite Central Banking

by C H

Coombs’ defence of a composite central bank may appear quaint today, but we have merely fallen victim to a later conventional wisdom. Coombs was trying to build a central bank that was not unthinkingly modelled on the Bank of England or beholden to its values. Rather, he aimed to build a central bank appropriate to Australian conditions. He saw the central banking and commercial arms of the Commonwealth Bank as symbiotic (Schedvin 1992, pp. 160, 281). The commercial arms could also be used for regulatory purposes, including for aggregate demand management, and the central banking personnel could learn from the hands-on experience of the commercial arms. The trading banks saw only the government hiding behind regulation that privileged the earnings of the various commercial arms of the Commonwealth Bank (see fn.7). Coombs argued that the Commonwealth Bank’s commercial institutions were simply out-competing a sluggish private banking sector that was indifferent to innovation.