Friday, May 1, 2009

Laissez-faire banking

RF: Describe free banking. How does it differ from the sort of system we have in the United States today?
Selgin: I use the term to mean laissez-faire banking — banking without any special government regulations or restrictions. Like free trade, it’s an ideal concept. It doesn’t refer to any specific or actual banking system, although some, like Scotland’s in the early 19th century, came close.
My own ideal version of free banking would have no special requirements for note issuance. Private banks would be able to issue their own notes on the same basis as they create demand deposits. They would also be free to open branches and invest in all kinds of securities. Finally, there wouldn’t be any sort of implicit or explicit government guarantees, like deposit insurance.

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