The faces of central banks: Four men, four crises

A central bank is an institution. But at certain moments, everything rested on the shoulders of a single person.

First face: Paul Volcker. He took over the American central bank in nineteen seventy-nine.

American inflation was then above ten per cent. It came close to fifteen per cent over a year in spring nineteen eighty.

Volcker chose the most brutal remedy: he let rates climb, to nearly twenty per cent in nineteen eighty-one.

The price was terrible: two recessions, and unemployment above ten per cent in late eighty-two. He was hated.

But inflation fell to around three per cent by eighty-three. And the central bank gained something rare: credibility.

Second face: Alan Greenspan, from nineteen eighty-seven to two thousand six. A reign of nearly nineteen years.

In nineteen ninety-six, he wondered aloud about a possible irrational exuberance in the markets.

But at every crash, he cut rates. Investors came to believe he would always protect them.

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They called it the Greenspan put: a supposed insurance against falls. And insurance pushes people to take more risk.

Third face: Ben Bernanke. Before heading the Fed, he spent years studying the crisis of nineteen twenty-nine.

His conclusion: the central bank had worsened the Great Depression, by letting banks fail and money shrink.

In two thousand eight, the historian found himself facing the crisis he had studied all his life.

He did the opposite of nineteen twenty-nine: rates near zero, emergency loans, massive bond purchases.

He would be criticised for saving the banks. But the feared depression did not happen. He received the Nobel prize in two thousand twenty-two.

Fourth face: Mario Draghi, president of the European Central Bank. Summer two thousand twelve, the euro was wobbling.

Spain and Italy were borrowing at ever higher rates. Over ten years, Spain passed seven per cent. Markets were betting on a break-up.

On the twenty-sixth of July, in London, Draghi said one sentence: the ECB would do whatever it takes to preserve the euro.

Then he added: believe me, it will be enough. Rates began to fall.

The tool promised, announced in September, was never used. Words were enough.

The twist: these four men's power was not kept in a vault. It lay in something fragile: being believed.

Volcker earned it through pain, Draghi spent it in one sentence. Credibility is a central bank's most precious asset.