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:
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:…
The Canadian system was another success story, especially compared to the notoriously flawed U.S. system.…
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:…
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.… (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.

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More from @GeorgeSelgin

21 Feb
File under: Lies, damn lies, and statistics. Because it was an unusually sudden and steep downturn, to really get a sense of the severity of the "Roosevelt Recession," one has to look not at the annual GNP or GDP data, but at monthly measures, like Industrial Production. 1/n
Here's what the latter series looks like. As you can see, it shows that the '37-'38 recession did in fact undo a big part of the '33-'37 recovery, which had itself been disappointingly slow and (by early 1937) far from complete. 2/n.
Note how, setting aside the spring '33 "boomlet" (reflecting firms' attempts to build inventory in advance of coming NRA controls), there's no real progress until the NRA, the New Deal's keystone recovery program, lapses in '35. That's no coincidence:… 3/n
Read 9 tweets
8 Feb
Thread: Fed officials are now saying that they'll be able to launch FedNow in 2023 rather than later:…
It's understandable that they should do everything possible to accelerate FedNow's launch: RTP, FedNow's private-sector rival, has been operating since 2017, and its network now covers well over 70% of all U.S. bank deposits, with new depository institutions joining every week.
Universal or "ubiquitous" coverage was one of the key objectives of the Faster Payments Task Force est. by the Fed in 2015. The Clearing House's RTP system answered that Task Force's recommendations. By late 2018 it had 50% network coverage.
Read 19 tweets
6 Feb
Unfortunately, the errors of the past, however persistent, don't absolve fiscal and monetary authorities from responsibility for avoiding, or trying to ovoid, serious errors in the opposite direction. Life would be easier if they did. But they don't. 1/n
It's particularly unwise, IMHO, to suggest that ANY positive stimulus, now matter how large, is worth trying because of past inflation undershooting. According to this logic, why not $5 trillion; or $10, or...whatever?
Of course, many politicians will wring their hands at the prospect of piling-on to any such gravy train. They like "doing more" for their constituents. The macro consequences of excessive stimulus aren't their problem. But for that very reason, someone has to look out for those.
Read 5 tweets
27 Jan
It's dandy that 100 DIs have agreed to take part in FedNow's pilot program. That's about as many as are now directly connected to RTP (w/ many others using it through correspondents). And some of the top 15 banks are conspicuously absent from the list. 1/n…
Absent are Bank of America, U.S. Bancorp, Truist, PNC, the TD Bank Group, State Street Corp., and Fifth Third Bank. All save State Street are connected to RTP. So even if FedNow started now and all banks on its list connected, RTP would the bigger network by a long chalk. 2/n
And of course FedNow won't actually be ready to launch for 3 more years: in the world of payments innovations, that's an eon! 3/n
Read 5 tweets
27 Jan
As this claim has met with some resistance, allow me to expand upon it with examples, both fictional.
Suppose, for the first, that I go into my district Federal Reserve bank, find one of its cash tellers (yes, the Fed has tellers), present her with a $20 Fed note, and say, Here is one your liabilities, for $20. I'd like those now."
Of course in reality the teller would call security--itself evidence that the $20 is no ordinary IOU! But suppose instead she doesn't. Instead, she says, "No problem." Then an awkward pause ensues.
Read 7 tweets
27 Jan
An answer, in a thread, because others may gain something by it.
The first thing you must do, if you wish to understand the value of an irredeemable fiat money like today's USD, is to entirely expunge the word "backing" from your economics vocabulary. Trust me, it is good for nothing but mischief.
It's true that the dollars the Fed creates are, for accounting purposes, "liabilities." It's also true that, the market value of the liabilities of most financial firms, such as ordinary banks, depends on the value of the assets backing those liabilities.
Read 18 tweets

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