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Interest rates under the U.S. national banking system

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Author Info
Bruce A. Champ
Neil Wallace
Warren E. Weber

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Abstract

According to previous studies, the demand-liability feature of national bank notes did not present a problem for note-issuing banks because the nonbank public treated notes and other currency as perfect substitutes. However, that view, when combined with nonbindingness of the collateral restriction against note issue, itself an implication of the fact that some eligible collateral was not used for that purpose, implies that the safe short-term interest rate is pegged at the tax rate on note circulation. Since evidence on short-term interest rates is inconsistent with such a peg, that view must be rejected.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 161.

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Date of creation: 1993
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Publication status: Published in Journal of Monetary Economics (Vol. 34, No.3; Dec. 1994, pp.343-358)
Handle: RePEc:fip:fedmsr:161

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Keywords: Banks and banking - History ; Interest rates;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kuehlwein, Michael, 1992. "The National Bank Note Controversy Reexamined," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 111-26, February. [Downloadable!] (restricted)
  2. James, John A, 1976. "The Conundrum of the Low Issue of National Bank Notes," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 359-67, April. [Downloadable!] (restricted)
  3. Cagan, Phillip & Schwartz, Anna J, 1991. "The National Bank Note Puzzle Reinterpreted," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 293-307, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bruce Champ, 2007. "The National Banking System: empirical observations," Working Paper 0719, Federal Reserve Bank of Cleveland. [Downloadable!]
  2. Ricardo de O. Cavalcanti & Andres Erosa & Ted Temzelides, 1999. "Private money and reserve management in a random-matching model," Discussion Paper / Institute for Empirical Macroeconomics 128, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  3. Leo Ferraris, 2003. "Money And Credit In Random Matching Models Of Money," Working Papers 59, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  4. Stephen Quinn & William Roberds, 2008. "The evolution of the check as a means of payment: a historical survey," Economic Review, Federal Reserve Bank of Atlanta. [Downloadable!]
  5. James Bullard & Bruce D. Smith, 2002. "Intermediaries and payments instruments," Working Papers 2002-006, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  6. Bruce Champ & Neil Wallace, 2003. "Resolving the National Banking System note-issue puzzle," Working Paper 0316, Federal Reserve Bank of Cleveland. [Downloadable!]
  7. Antoine Martin & Cyril Monnet & Warren E. Weber, 2000. "Costly banknote issuance and interest rates under the national banking system," Working Papers 601, Federal Reserve Bank of Minneapolis. [Downloadable!]
  8. Charles M. Kahn & William Roberds, 1998. "Demandable debt as a means of payment: banknotes versus checks," Working Paper 98-5, Federal Reserve Bank of Atlanta. [Downloadable!]
    Other versions:
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