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Interest rates under the U.S. national banking system

Author

Listed:
  • 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.

Suggested Citation

  • Bruce A. Champ & Neil Wallace & Warren E. Weber, 1993. "Interest rates under the U.S. national banking system," Staff Report 161, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:161
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    References listed on IDEAS

    as
    1. 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.
    2. Kuehlwein, Michael, 1992. "The National Bank Note Controversy Reexamined," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 111-126, February.
    3. 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 359-367, April.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ricardo de O. Cavalcanti & Andres Erosa & Ted Temzelides, 1999. "Private Money and Reserve Management in a Random-Matching Model," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 929-945, October.
    2. Leo Ferraris, 2002. "Money and credit in random matching models of money," Working Papers in Public Economics 59, University of Rome La Sapienza, Department of Economics and Law.
    3. 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.
    4. 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.
    5. Bruce A. Champ, 2007. "The National Banking System: empirical observations," Working Papers (Old Series) 0719, Federal Reserve Bank of Cleveland.
    6. Bullard, James & Smith, Bruce D., 2003. "Intermediaries and payments instruments," Journal of Economic Theory, Elsevier, vol. 109(2), pages 172-197, April.
    7. Stephen F. Quinn & William Roberds, 2008. "The evolution of the check as a means of payment: a historical survey," Economic Review, Federal Reserve Bank of Atlanta, vol. 93(4).
    8. Bruce A. Champ & Neil Wallace, 2003. "Resolving the National Banking System note-issue puzzle," Working Papers (Old Series) 0316, Federal Reserve Bank of Cleveland.
    9. Li, Yiting, 2006. "Banks, private money, and government regulation," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2067-2083, November.
    10. 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.
    11. Wallace, Neil & Zhu, Tao, 2007. "Float on a note," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 229-246, March.
    12. Tao Zhu & Neil Wallace, 2004. "Float on a Note," 2004 Meeting Papers 342, Society for Economic Dynamics.

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