“In God We Trust” was first emblazoned on U.S. paper currency in 1957, and was steadily introduced to all U.S. paper currency by August of 1966. How has this demonstrative, articulated trust in God underpinned the value of our currency? Trust in God, sadly it seems, has led to an over two-fold increase in the rate of deterioration in the value of our currency. Trust in God alone has not preserved the value of our currency – so in the spirit that we “render unto Caesar that which is Caeser’s” , trust in the Fed is likely more important to underpin the value of a dollar. But can we trust the Fed?
The Federal Reserve and many other central banks have achieved remarkable credibility in the two decades preceding the financial crisis of 2007-2008. However, the recent financial crisis and the call for central bankers to focus more on financial stability and especially the tools of macro prudential regulation may pose significant challenges for central banks to preserve their credibility in the future.