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Canadian Bank Notes and Dominion Notes: Lessons for Digital Currencies

Author

Listed:
  • Ben Fung
  • Scott Hendry
  • Warren E. Weber

Abstract

This paper studies the period in Canada when both private bank notes and government-issued notes (Dominion notes) were simultaneously in circulation. Because both of these notes shared many of the characteristics of today's digital currencies, the experience with these notes can be used to draw lessons about how digital currencies might perform. The paper begins with a brief historical review of how these notes came into existence and of the regulations regarding their issuance. It examines historical evidence on how desirable bank notes were as media of exchange by examining how well they functioned with respect to ease of transacting, counterfeiting, safety, scarcity, and par exchange (a uniform currency). It then examines whether the introduction of government-issued notes improved how bank notes functioned as media of exchange. It finds that they did not. Improvements in the functioning of bank notes were due to changes in government regulation. Using the Canadian experience and that of the United States, the paper concludes that privately issued digital currencies will not be perfectly safe without government intervention, government-issued digital currency will not drive out existing private digital currencies, and government intervention will be required for privately issued and government-issued digital currencies to be a uniform currency.

Suggested Citation

  • 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.
  • Handle: RePEc:bca:bocawp:17-5
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    File URL: https://www.bankofcanada.ca/wp-content/uploads/2017/02/swp2017-5.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    3. Hanna Halaburda & Miklos Sarvary, 2016. "Beyond Bitcoin," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-50642-9.
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    Citations

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    Cited by:

    1. Charles M. Kahn & Francisco Rivadeneyra & Tsz-Nga Wong, 2018. "Should the Central Bank Issue E-money?," Staff Working Papers 18-58, Bank of Canada.
    2. Sheila Dow, 2019. "Monetary Reform, Central Banks, and Digital Currencies," International Journal of Political Economy, Taylor & Francis Journals, vol. 48(2), pages 153-173, April.
    3. Ben Fung & Scott Hendry & Warren E. Weber, 2018. "Swedish Riksbank Notes and Enskilda Bank Notes: Lessons for Digital Currencies," Staff Working Papers 18-27, Bank of Canada.
    4. Walter Engert & Ben Fung, 2017. "Central Bank Digital Currency: Motivations and Implications," Discussion Papers 17-16, Bank of Canada.
    5. Amber Wadsworth, 2018. "The pros and cons of issuing a central bank digital currency," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 81, pages 1-21, June.
    6. James Chapman & Carolyn A. Wilkins, 2019. "Crypto ‘Money’: Perspective of a Couple of Canadian Central Bankers," Discussion Papers 2019-1, Bank of Canada.
    7. Amber Wadsworth, 2018. "What is digital currency?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 81, pages 1-14, April.
    8. Ben Fung & Hanna Halaburda, 2016. "Central Bank Digital Currencies: A Framework for Assessing Why and How," Discussion Papers 16-22, Bank of Canada.
    9. Stephen D. Williamson, 2018. "Is Bitcoin a Waste of Resources?," Review, Federal Reserve Bank of St. Louis, vol. 100(2), pages 107-115.

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    More about this item

    Keywords

    Bank notes; E-Money; Financial services;
    All these keywords.

    JEL classification:

    • 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
    • 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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