Thread by @GeorgeSelgin

Thread: Northern Ireland's First Trust Bank, one of the world's few remaining commercial banks-of-issue, will exit the paper currency business in 2022, leaving only three surviving Irish note-issuing banks: aibni.co.uk/banknotes

Elsewhere, Scotland and Hong Kong also have three commercial banks-of-issue each. That's 9 surviving private note-issuing banks. What few may realize is that, little more than a century ago, currency systems based on multiple, private banks-of-issue were the norm.

Still fewer people realize that many of these competitive currency systems were remarkably stable and efficient. The Scottish system, for instance, had a far better 19th-c. record than England's, where the Bank of England enjoyed many exclusive privileges: iea.org.uk/sites/default/…

The Canadian system was another success story, especially compared to the notoriously flawed U.S. system. alt-m.org/2015/07/29/the…

Of course the U.S. also lacked a central bank before 1914. Like Canada it relied on commercial banks-of-issue: state-chartered until 1866, and national banks starting in1863. But unlike their Canadian counterparts, U.S. banks were hampered by all sorts of deleterious regulations.

Barriers to nationwide branch banking alone led to the proliferation of relatively small and under-diversified banks. Less notorious but just as harmful were rules that strictly limited the assets U.S. banks could hold as backing for their notes.

Contrary to conventional wisdom, it was these misguided legal restrictions rather than the lack of a privileged central bank-of-issue that led to pre-Fed currency crises. Nor did the Fed succeed in preventing further, severe crises. Details here: cato.org/publications/p…

Sadly, most economists know so little about the history of money that they've taken the pre-Fed experience to be typical of the consequences of letting commercial banks supply P2P payments means.

Some even assume that privately-issued currency can't circulate at par, because notes issued by (unit) antebellum banks were often discounted in markets far removed from their source. But that was a consequence of unit banking, not plural issue as such.

Even Canadian economists, who ought to know better, have misread the history of private currency to raise unwarranted fears of the consequences of allowing private digital currencies to develop. alt-m.org/2017/03/16/wro… (first of three parts)

More generally, economists' failure to study the workings free competition among private currency issuers, and their corresponding, groundless assumption that currency as a "public good" that must be supplied by a regulated monopoly, ought to be a black mark on their profession.

Although there's no undoing the past, let's not repeat it: let's insist that economists carefully consider the implications of having private firms--FinTechs or banks--competitively supply digital P2P payments media, denominated and redeemable in USD or otherwise.

And let's not fall for mere assertions to the effect that such media are a "public good," or for arguments based upon a mere analogy with past private currency systems, and especially ones based on a defective understanding of why those systems sometimes failed.

Att'n: @lawrencehwhite1 @BobMurphyEcon @PeterContiBrown @DavidBeckworth @jp_koning @csissoko @RameshPonnuru @DanAwrey @WilliamJLuther @rcwhalen @MrRBourne @yaronbrook @1954swilliamson @Frances_Coppola @ProfKateJudge @david_glasner