National Bank Note Redemption and Treasury Cash

Mobile Collateral versus Immobile Collateral

“…The National Banking Era saw a secular fall in amount of Treasuries outstanding relative to GDP, as shown 27. There is a large literature on the underissuance puzzle that we have not discussed, for example, Bell (1912), Cagan (1965), Goodhart (1965), Cagan and Schwartz (1991), Duggar and Rost (1969), Champ, Wallace, and Weber (1992), and Wallace and Zhu (2007). None of these explanation are mutually exclusive with those we have discussed.…”

The Payment System and Liquidity Provision during the US National Banking Era

“…2 The literature on the NBS largely deals with the question of the profitability and the underissuance of national notes in the 1880s and 1890s -a 'puzzle' posed by Friedman and Schwartz (1963, p. 23). Bell (1912), Cagan (1965), Goodhart (1965), Duggar and Rost (1969), Cagan and Schwartz (1991), Champ, Wallace and Weber (1992), Champ, Freeman and Weber (1999) and Wallace and Zhu (2007) endorse the theory of redemption costs. Hetherington's (1990) explanation rests on the changes in the regulatory environment.…”

Resolving the puzzle of the underissuance of national bank notes

“…The reasoning typically advanced to explain low national bank note issuance posits hidden transacting costs, either in the form of physical note redemption costs or the costs of maintaining cash balances in support of bank note issues. Authors like Bell (1912), Cagan (1965), Goodhart (1965), Cagan and Schwartz (1991), Duggar and Rost (1969), and Champ, Wallace, and Weber (1992) argue that redemption costs may have been large enough to explain bankers' reluctance to issue despite the seeming profitability from expanding the supply of notes. James (1978) was the first to suggest that aggregate calculations, like those provided by Cagan and Friedman and Schwartz, might be providing a misleading picture of national bank note profitability.…”