The Efficiency of Private E-Money-Like Systems: The U.S. Experience with State Bank Notes

Warren E. Weber
2015 Social Science Research Network  
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
more » ... ting 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 emoney system can operate efficiently but only with appropriate government intervention, regulation, and supervision to minimize counterfeiting and to promote safety and par exchange.
doi:10.2139/ssrn.2586210 fatcat:j55fekvhezbwvotd2cnuytj4cq