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Game of Thrones Economics: Why Doesn't Westeros Have A Central Bank?

This article is more than 8 years old.

In Game of Thrones, the Seven Kingdoms of Westeros have no central bank. Why is this? And would one even be possible given the political economy of the known world? This post will address these question. As a disclaimer, my knowledge of the show is based on reading the first two books and being up-to-date on the show. If you are further behind than that, then I suppose there could be some spoilers here for you.

The Seven Kingdoms of Westeros utilize commodity based currencies, including a gold dragon coin, a silver stag coin, and a copper penny. The value of this type of currency is based on the economic value of the commodity the coins are made from. A gold coin is valuable because the gold it’s made of can be melted down and traded. In most modern economies, in contrast, the currency is fiat money whose supply is controlled by a central bank. However, a modern economy is not a prerequisite for a central bank or fiat money. For example, the pre-cursor to the Central Bank of Sweden was founded and offered paper banknotes in the 1600s.

So why doesn’t Westeros have a central bank? I would argue this question comes down to a lack of the right institutions, and the difficulty of creating these institution in such a world. The key is that to do the job of a central bank properly, an institution must have the following characteristics: independent, long-lived, and dedication to the public good.

Why these three characteristics? Because they are required for making credible commitments, and credible commitments are what central banking is all about. Unlike a commodity based currency, which has intrinsic value, a fiat currency or gold-backed currency retains it's value due to some type of promise. Either a central bank promises that the paper is redeemable for a specific amount of bullion, or they must at least promise to keep the supply of the currency limited. When a central bank loses it’s ability to make credible commitments, people lose faith in the currency and it’s value evaporates via hyperinflation.

Independence and longevity are needed because an institution that may crumble in the future, or that may be swayed by outside forces, cannot make credible long-term commitments. Dedication to the public good is necessary because it ensures a central bank will set the supply of money that maximizes societal welfare rather than private gain, which means a commitment to something like stable inflation and full-employment. An institution without these characteristics would set the money supply with some other goal in mind, and thus would not necessarily perform the crucial functions of a central bank. Independence is related to this, as it means the bank trying to serve the public good won’t be swayed by the interests of outside parties.

So does Westeros really lack an institution with independence, longevity, and commitment to the public good? Let us consider the possible contenders.

The first and most obvious contender for central banking is the ruling monarchy. But even in the real world monarchs don’t have a good record of when it comes to monetary policy. Part of this is the lack of longevity, and part is lack of commitment to the public good. For example, the crown may find itself deep in debt and therefore pressured to pursue high inflation to erode the value of what it owes. For example, with Robert Baratheon’s high debts to the Lannisters and the Iron Bank of Braavos, it’s likely he would have pursued inflation if he was able to set the money supply with a fiat currency or gold standard.  A related problem is that monarchs may be willing to suffer the long-run consequences of high inflation for short-run gains in order to preserve their power, even though this might not maximize the public good.

A final problem with the crown operating as a central bank is that in Westeros the crown lacks longevity. So even if the currently ruling House could be trusted to function as a good central banker, the currencly could be undermined if the rule of that House was uncertain and a future ruling House would likely be a bad central banker. This problem would especially be problematic in the current state of open war in Westeros where who will be King and for how long is highly uncertain.

There are other institutions that surround the crown could potentially serve as a central bank. For example, Maester and Master of Coin can service multiple kings, and thus potentially have more longevity than the crown. However, both clearly lack independence as the king can have either replaced at his whim. And both lack a credible commitment to the public good, as evidenced by the scheming of Maester Pycelle and Master of Coin Petyr Baelish.

Religious institutions are another contender for a central bank. The Faith of the Seven Gods is kind of like the Catholic Church of Westeros, and does have some requisite central banking features. Specifically, the task of determining the money supply could be given to the Sept of Baelor, which is the church for this faith in King’s Landing. One advantage of this is that the religion has served a long line of kings and has shown longevity thus far. In addition, the commitment to religious rules and governance by religious texts rather than the whim of the monarchy means they can reasonably claim to be dedicated to the public good and independent. However, much of this is undermined by the existence of other religions in the realm. One potential king, Stannis Baratheon, serves R’hllor, the god of fire. This means the Sept of Baelor could potentially be destroyed if he becomes King, or at least be stripped of it's theoretical monetary authority. Thus even if the Sept of Baelor was a trusted institution, it’s uncertain longevity would undermine it’s credibility.

The Bank of Braavos is another potential contender for central bank. This is the most powerful financial institution in the known world. It has been around for thousands of years, and Kings and Queens of Westeros fear to cross it. That means it has longevity and independence. However, it lacks a dedication to the public good, as it must do what is in the interest of it’s owners, who are around a thousand “keyholders” that descended from the bank's founders, and also some wealthy and powerful families of Braavos.

Overall, the rulers, religions, and other institutions of the known world all seem to lack the fundamental characteristics necessary to function as a central bank of Westeros. The difficulty of creating long lasting, independent, and benevolent institutions, I would argue, is why the Seven Kingdoms of Westeros use a commodity currency and lack monetary policy. But I don’t think a central bank in Westeros is impossible. In fact, there is one institution in the realm that does have these characteristics and could potentially serve as a central bank: the Night’s Watch.

The watch operates independently of the crown, has existed for thousands of years, and is dedicated to the public good. The longevity of the Watch is undebatable, as it was reportedly founded 8,000 years before the time of Game of Thrones.   Their staunch independence is evidenced by the nuetrality they maintained during the rebellion that unseated the Targaryens. The Watch's military might ensures they can maintain that independence. Their dedication to the public good is seen in the mission of the Watch, which is the protection of the Seven Kingdoms.

Members of the watch currently serve in one of three groups: Rangers, Builders, and Stewards. It’s easy to imagine adding Economists as a fourth group, and adding price stability and full employment to oath that all members must swear to. Public acceptance would likely require the crown mandating that Night's Watch currency be accepted as legal tender. But after that, the Night's Watch could independently determine the money supply and even conduct monetary policy.

In short, it’s easy to understand why Westeros lacks a central bank, but I don’t think it is hopeless. I believe the Night’s Watch has the institutional features that would allow it to serve as a successful central bank.