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Lessons from a laissez-faire payments system: the Suffolk Banking System (1825-58)

  • Arthur J. Rolnick
  • Bruce D. Smith
  • Warren E. Weber

A classic example of a privately created interbank payments system was operated by the Suffolk Bank of New England (1825–58). Known as the Suffolk Banking System, it was the nation’s first regionwide net-clearing system for bank notes. While it operated, notes of all New England banks circulated at par throughout the region. Some have concluded from this experience that unfettered competition in the provision of payments services can produce an efficient payments system. But another look at the history of the Suffolk Banking System questions this conclusion. The Suffolk Bank earned extraordinary profits, and note-clearing may have been a natural monopoly. There is no consensus in the literature about whether unfettered operation of markets with natural monopolies produces an efficient allocation of resources. ; Reprinted in Quarterly Review, Fall 2002 (v. 26. no. 4)

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Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (1998)
Issue (Month): Sum ()
Pages: 11-21

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Handle: RePEc:fip:fedmqr:y:1998:i:sum:p:11-21:n:v.22no.3
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  1. repec:cup:cbooks:9780521271943 is not listed on IDEAS
  2. Kyle Bagwell & Garey Ramey, 1996. "Capacity, Entry, and Forward Induction," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 660-680, Winter.
  3. Kroszner, Randall S, 1996. "Comment on the Efficiency of Self-Regulated Payments Systems: Learning from the Suffolk System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 798-803, November.
  4. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
  5. Lake, Wilfred S., 1947. "The End of the Suffolk System," The Journal of Economic History, Cambridge University Press, vol. 7(02), pages 183-207, November.
  6. Calomiris, Charles W & Kahn, Charles M, 1996. "The Efficiency of Self-Regulated Payments Systems: Learning from the Suffolk System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 766-97, November.
  7. Arthur J. Rolnick & Warren E. Weber, 1998. "The Suffolk Banking System reconsidered," Working Papers 587, Federal Reserve Bank of Minneapolis.
  8. Ware, Roger, 1984. "Sunk Costs and Strategic Commitment: A Proposed Three-Stage Equilibrium," Economic Journal, Royal Economic Society, vol. 94(374), pages 370-78, June.
  9. Aaron S. Edlin & Mario Epelbaum & Walter P. Heller, 1998. "Is Perfect Price Discrimination Really Efficient?: Welfare and Existence in General Equilibrium," Econometrica, Econometric Society, vol. 66(4), pages 897-922, July.
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