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The National Banking System: the national bank note puzzle

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  • Bruce Champ
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    Abstract

    The era of the National Banking System (1863–1913) has been a puzzling one for monetary theorists and economic historians for well over a century. The puzzles associated with this period take various forms. Despite calculations of high profit rates on note issue for certain periods of the era, national banks never fully utilized their note-issuing powers. Relatedly, the behavior of interest rates during the period is also puzzling given the regime of bank note issuance put in place by the National Bank Acts. On the surface, it appears that an arbitrage condition is broken. The observed inelasticity in aggregate national bank note issue also is puzzling, particularly given the behavior of interest rates. This paper examines many of the puzzles of the national banking era and provides a summary of the current attempts to explain those puzzles.

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    Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0722.

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    Date of creation: 2007
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    Handle: RePEc:fip:fedcwp:0722

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    Keywords: National banks (United States) ; National bank notes;

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    1. Champ, Bruce & Freeman, Scott & Weber, Warren E, 1999. "Redemption Costs and Interest Rates under the U.S. National Banking System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 568-89, August.
    2. Bruce Champ & Bruce D. Smith & Stephen D. Williamson, 1996. "Currency Elasticity and Banking Panics: Theory and Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 828-64, November.
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