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The efficiency of private e-money-like systems: the U.S. experience with state bank notes

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  • Warren E. Weber

Abstract

In the United States prior to 1863, each bank issued its own distinct notes. E-money shares many of the characteristics of these bank notes. This paper describes some lessons relevant to e-money from the U.S. experience with state bank notes. It examines historical evidence on how well the bank notes?a privately issued currency system with multiple issuers?functioned with respect to ease of transacting, counterfeiting, safety, overissuance, and par exchange. It finds that bank notes made transacting easier and were not subject to overissuance. However, counterfeiting of bank notes was widespread, bank notes were not perfectly safe, and notes of different banks did not exchange at par and rates of exchange were volatile. The paper also examines how bank notes were regulated and supervised and how that regulation and supervision affected the functioning of the system. The U.S. experience with state bank notes suggests that a privately issued e-money system can operate efficiently but only with appropriate government intervention, regulation, and supervision to minimize counterfeiting and to promote safety and par exchange.

Suggested Citation

  • Warren E. Weber, 2015. "The efficiency of private e-money-like systems: the U.S. experience with state bank notes," FRB Atlanta CenFIS Working Paper 15-1, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedacf:2015_001
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    References listed on IDEAS

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    1. Ales, Laurence & Carapella, Francesca & Maziero, Pricila & Weber, Warren E., 2008. "A model of banknote discounts," Journal of Economic Theory, Elsevier, vol. 142(1), pages 5-27, September.
    2. Paul M. Connolly & Robert W. Eisenmenger, 2000. "The role of the Federal Reserve in the payments system," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 45(Oct), pages 131-161.
    3. Sylla, Richard & Legler, John B. & Wallis, John J., 1987. "Banks and State Public Finance in the New Republic: The United States, 1790–1860," The Journal of Economic History, Cambridge University Press, vol. 47(2), pages 391-403, June.
    4. Ben Fung & Miguel Molico & Gerald Stuber, 2014. "Electronic Money and Payments: Recent Developments and Issues," Discussion Papers 14-2, Bank of Canada.
    5. Rolnick, Arthur J & Weber, Warren E, 1983. "New Evidence on the Free Banking Era," American Economic Review, American Economic Association, vol. 73(5), pages 1080-1091, December.
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    Cited by:

    1. Warren E. Weber, 2015. "Government and Private E-Money-Like Systems: Federal Reserve Notes and National Bank Notes," Staff Working Papers 15-18, Bank of Canada.
    2. Warren E. Weber, 2015. "The Efficiency of Private E-Money-Like Systems: The U.S. Experience with National Bank Notes," Staff Working Papers 15-3, Bank of Canada.
    3. Ben Fung & Scott Hendry & Warren E. Weber, 2017. "Canadian Bank Notes and Dominion Notes: Lessons for Digital Currencies," Staff Working Papers 17-5, Bank of Canada.
    4. Ben Fung & Miguel Molico & Gerald Stuber, 2014. "Electronic Money and Payments: Recent Developments and Issues," Discussion Papers 14-2, Bank of Canada.
    5. Walter Engert & Ben Fung, 2020. "A Uniform Currency in a Cashless Economy," Staff Analytical Notes 2020-7, Bank of Canada.
    6. Ohik Kwon & Jaevin Park, 2018. "E-money: Legal Restrictions Theory and Monetary Policy," Working Papers 2018-17, Economic Research Institute, Bank of Korea.

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    More about this item

    Keywords

    bank notes; e-money; financial services;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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