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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, 2014. "The Efficiency of Private E-Money-Like Systems: The U.S. Experience with State Bank Notes," Staff Working Papers 14-15, Bank of Canada.
  • Handle: RePEc:bca:bocawp:14-15
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    References listed on IDEAS

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    1. 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(02), pages 391-403, June.
    2. 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.
    3. Ben Fung & Miguel Molico & Gerald Stuber, 2014. "Electronic Money and Payments: Recent Developments and Issues," Discussion Papers 14-2, Bank of Canada.
    4. 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.
    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. 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.
    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.

    More about this item

    Keywords

    Bank notes; E-money; Financial services;

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • 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
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • 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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