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Interest rates under the U.S. national banking system

Bruce Champ (), Neil Wallace () and Warren Weber

No 161, Staff Report from Federal Reserve Bank of Minneapolis

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.

Keywords: Banks and banking - History; Interest rates (search for similar items in EconPapers)
Date: 1993
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Published in Journal of Monetary Economics (Vol. 34, No.3; Dec. 1994, pp.343-358)

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