The war in Ukraine has called attention to the destructive power that sanctions applied to Russia are having and will continue to have on Russia’s economy. Among the sanctions is the policy of freezing the Russian central bank’s overseas assets worth around $600 billion. Preventing the central bank from deploying its international reserves, making it impossible for it to liquidate its assets, is part of an economic war designed to undermine Russia’s economy and war effort. The French finance minister said that “[w]e are waging total economic and financial war against Russia, Putin, and his government” (Wigglesworth et al. 2022).
Special wartime monetary policies have often been successfully used before in history. They suggest that monetary matters can have stronger and much longer-term consequences beyond the types of effects and horizons that macroeconomists typically consider or believe to be possible. One suggestive example is the case of the Bank of England’s support to the British economy during the French Wars of 1793-1815. Adam Smith (2003/1776) had already written in The Wealth of Nations that “The stability of the Bank of England is equal to that of the British government … [The Bank of England] acts, not only as an ordinary bank, but as a great engine of state,” and the semi-public character of the Bank’s actions emphasised by Kynaston (2017: 44). In recent work, we argue that the Bank’s support to the war effort likely decisively influenced the course of history (O’Brien and Palma 2016, 2020a, 2020b). We elaborate upon the evolution of the institutional framework without which the money market could not have supported the British government’s systematic naval and military successes over the 18th century. The culmination of these efforts was victory in the most protracted and costly conflict of all, the Revolutionary and Napoleonic wars, which witnessed a new and more radical form of monetary policy.
From its foundation as a private corporation in 1694, the Bank of England extended large amounts of credit to support the British private economy and to support an increasingly centralised British state. It was playing a pub
