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

Abstract

The author joined the Federal Reserve Bank of Minneapolis in 1981 and retired in 2012. His research focuses on monetary and banking theory and history, with particular emphasis on banking in the United States before 1861. This paper was written while the author was a visiting scholar at the Bank of Canada's Currency Department. He is currently a visiting scholar at the Federal Reserve Bank of Atlanta and visiting professor at the University of South Carolina. Bank of Canada working papers are theoretical or empirical works-in-progress on subjects in economics and finance. The views expressed in this paper are those of the author. No responsibility for them should be attributed to the Federal Reserve Bank of Atlanta, the Federal Reserve System or the Bank of Canada.

This Time is Different: Facebook s Libra Can Improve Both Financial Inclusion and Global Financial Stability as a Viable Alternative Currency to the U.S. Dollar

“…Ingves & Donaldson, 2018;Robleh et al, 2014). Libra aims to transform how people transfer money using mobile payment systems (Calibra) and purchase goods and services online without the hassle at minimum or no transactional cost (see Weber, 2015. With Libra, Facebook aims to tap on circa 1.7 billion unbanked adults as of 2017 (almost 50% live in seven countries (Demirgüç-Kunt et al, 2018;Schabel & Shin, 2018;Goodhart, 2000).…”

Government and Private E-Money-Like Systems: Federal Reserve Notes and National Bank Notes

“…In my two previous studies of the U.S. experience with bank notes, Weber (2015) and Weber (2014), I presented some characteristics that would make potential media of exchange more desirable for the non-issuer public. These characteristics were that they:…”

“…14 See Weber (2015) for further discussion of this point. In that paper, I also discuss the mechanism that was put in place to mitigate this restriction and ensure that notes of different national banks would trade at par in all transactions.…”

“…Today, if the rationale for the central bank issuing e-money is to regain seigniorage revenue being lost because privately-issued e-moneys are replacing central bank currency, then the central bank will have to provide an e-money that is superior to the privately-issued ones, at least across some dimensions. For example, in Weber (2015), I argued that it is likely that privately-issued e-moneys will not trade at par in all transactions between members of the non-issuer public, or in transactions between the holders of an e-money and the issuer. The reason is that e-moneys could contain a large amount of information about the holder and the issuer, which would provide issuers with strong incentives to engage in various forms of discriminatory or non-linear pricing.…”

“…It should also be noted that Bitcoin and most other digital and cryptocurrencies are not e-moneys under this definition because they do not have an issuer and thus cannot be a liability of the issuer. For that reason, Bitcoin and other cryptocurrencies are not considered here.2 This period runs until 31 May 1935 when, according to the Annual Report of the Comptroller of the Currency, 1935, Table30, footnote 2, 234, national banks stopped issuing notes because the U.S. Treasury called the only bonds that could be used as collateral to back note issue.3 That national bank notes were similar to e-money is discussed inWeber (2015).…”