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

Warren E. Weber

CenFIS Working Paper 15-03
August 2015

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The period from 1914 to 1935 in the United States is unique in that it was the only time that both privately issued bank notes (national bank notes) and central-bank-issued bank notes (Federal Reserve notes) were simultaneously in circulation. This paper describes some lessons relevant to e-money from the U.S. experience during this period. It argues that Federal Reserve notes were not issued to be a superior currency to national bank notes. Rather, they were issued to enable the Federal Reserve System to act as a lender of last resort in times of financial stress. It also argues that the reason eventually to eliminate national bank notes was that they were potentially a source of bank reserves. As such, they could have threatened the Federal Reserve System's control of the reserves of the banking system and thereby the Fed's control of monetary policy.

JEL classification: E41, E42, E58

Key words: Bank notes, e-money, financial services


The author thanks Ben Fung, Scott Hendry, Gerald Stuber, and participants at a seminar at the Bank of Canada for useful comments on an earlier version of this paper. The views expressed here are the author's and not necessarily those of the Bank of Canada, the Federal Reserve Bank of Atlanta, or the Federal Reserve System. Any remaining errors are the author's responsibility.
Please address questions regarding content to Warren E. Weber, Visiting Scholar, Bank of Canada; Visiting Scholar, Federal Reserve Bank of Atlanta; Visiting Professor, University of South Carolina, weweber@gmail.com.
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