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Interest rates under the U.S. national banking system

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  • Bruce A. Champ
  • Neil Wallace
  • Warren E. Weber

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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Bibliographic Info

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

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  1. 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.
  2. 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.
  3. Kuehlwein, Michael, 1992. "The National Bank Note Controversy Reexamined," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 111-26, February.
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Citations

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Cited by:
  1. Li, Yiting, 2006. "Banks, private money, and government regulation," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2067-2083, November.
  2. Cavalcanti, R. & Erosa, A. & Temzelides, T., 1997. "Private Money and Reserve Management in a Random Matching Model," UWO Department of Economics Working Papers 9715, University of Western Ontario, Department of Economics.
  3. Tao Zhu & Neil Wallace, 2004. "Float on a Note," 2004 Meeting Papers 342, Society for Economic Dynamics.
  4. Weber, Warren E., 2003. "Interbank payments relationships in the antebellum United States: evidence from Pennsylvania," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 455-474, March.
  5. James Bullard & Bruce D. Smith, 2002. "Intermediaries and payments instruments," Working Papers 2002-006, Federal Reserve Bank of St. Louis.
  6. 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.
  7. Charles M. Kahn & William Roberds, 1999. "Demandable debt as a means of payment: banknotes versus checks," Proceedings, Federal Reserve Bank of Cleveland, pages 500-530.
  8. Leo Ferraris, 2002. "Money and credit in random matching models of money," Working Papers 59, University of Rome La Sapienza, Department of Public Economics.
  9. Bruce Champ & Neil Wallace, 2003. "Resolving the National Banking System note-issue puzzle," Working Paper 0316, Federal Reserve Bank of Cleveland.
  10. Bruce Champ, 2007. "The National Banking System: empirical observations," Working Paper 0719, Federal Reserve Bank of Cleveland.
  11. Wallace, Neil & Zhu, Tao, 2007. "Float on a note," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 229-246, March.
  12. 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.

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