ABSTRACT
In both the United States and the United Kingdom, a monopoly on ‘currency’ issue grew out of a system in which there were many issuers of banknotes. In the United Kingdom, that monopoly was created in 1844, and was accompanied by a 100 per cent specie marginal reserve requirement against banknote issue. The 1844 law, Peel’s Act, was a victory for the currency school, whose members advocated some version of hard money, or what much later came to be called monetarism. The 1844 law was opposed by members of the banking school: those who advocated some versions of laissez-faire in intermediation. Among the questions alluded to in the debates were: Was the private note-issuing system accomplishing anything? If it was, then would it be desirable to have the Bank of England manage its monopoly so as to emulate what the private note system was accomplishing? In this chapter, we revisit those questions and do so for at least three reasons. First, one test of progress in monetary theory is its ability to provide new insights about old questions that have never been satisfactorily resolved. Second, those old questions have modern analogues: should central banks operate lending facilities and, if so, how? Should stored value, and other modern analogues of private note-issue, be regulated and, if so, how? Third, the modelling ideas that throw light on those questions have implications for seemingly unrelated questions: for example, how best to model cashless economies.
