In order to stop such a vicious cycle before it ended in catastrophe and to ensure the stability and security of the financial system, central banks started to function as the “lender of last resort.” Central banks also provide stability and security in another form.
Under the gold standard, which was adopted until the 1930s, at least theoretically the outstanding amount of gold held by individual countries formed the basis of the value of their currency and economic activity. After the gold standard was abandoned, it became necessary to conduct active policy intervention, with central banks playing part of this role.