Bankers’ Trust: How Social Relations Avert Global Financial Collapse

Cooperation among central banks has been critical for stemming global financial instability. In the global financial crisis in 2007–8 and the COVID-19 pandemic, for example, the U.S. Federal Reserve extended international credits, known as dollar swap lines, to foreign central banks that needed them for stabilizing intervention in financial markets. Most accounts ascribe these episodes of central bank cooperation to geopolitical and national self-interest, but Sahasrabuddhe emphasizes the social relations of central bankers themselves. Central bankers often have common social and educational backgrounds, and they attend the same international meetings. In the 1920s, the governors of the Bank of England and the New York Federal Reserve even vacationed together. Ben Bernanke and Mervyn King, who headed the U.S. Federal Reserve and the Bank of England, respectively, during the global financial crisis, had shared adjacent offices as visiting professors at the Massachusetts Institute of Technology. Sahasrabuddhe argues that these social relations explain the successes and failures of central bank cooperation not only in recent crises but also after World War I, during the Great Depression, and under the Bretton Woods monetary system of the 1950s and 1960s.