Historically, central banks did not start as modern macroeconomic planners. They originated as private joint-stock commercial institutions chartered by sovereigns to raise state debt and manage government payments, such as the Bank of England in 1694. Over centuries, these institutions evolved to manage the supply of national credit, enforce monetary sovereignty, and stabilize panics.

The modern central banking framework was established by mapping out the role of a Lender of Last Resort (LOLR). Walter Bagehot’s foundational doctrine, published in 1873, established the baseline rules for central bank intervention during financial panics:

[Bagehot's Classical Doctrine]
  |- Lend Freely to Solvent Institutions --------> Halts panic-driven liquidity contagions
  |- Lend Against Good Collateral Tiers ----------> Protects the central bank's balance sheet
  |- Lend at Punitive High Interest Rates --------> Mitigates commercial bank moral hazard

This structural shift transformed central banks from profit-driven commercial actors into public, non-commercial institutions tasked with protecting the overall banking sector from systemic collapses.