The efficiency of private e-money-like systems: the U.S. experience with state bank notes

Warren Weber

No 15-1, FRB Atlanta CenFIS Working Paper from Federal Reserve Bank of Atlanta

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.

Keywords: bank notes; e-money; financial services (search for similar items in EconPapers)
JEL-codes: E41 E42 E58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-03-01
New Economics Papers: this item is included in nep-his, nep-ict, nep-mac and nep-mon
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Working Paper: The Efficiency of Private E-Money-Like Systems: The U.S. Experience with State Bank Notes (2014)
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