Unleashed Competition
Back to “free banking?”
Free banking refers to a system in which banks are able to issue their own banknotes, rather than being required to hold reserves of government-issued currency.
This allows for competition among banks to produce the most stable and widely accepted currency.
Supporters of free banking argue that it can lead to greater economic stability and growth, as it allows market forces to determine the supply of money, rather than government intervention.
However, critics argue that free banking can lead to a lack of regulation and oversight, which can result in financial instability and crises.
Positives and negatives of free banking…
Positives of free banking include:
Market forces determine the supply of money, which can lead to a more efficient and stable monetary system.
Banks are incentivized to maintain the stability and acceptability of their own banknotes, which can lead to a more stable currency.
It allows for competition among banks, which can lead to innovation and better services for customers.
Negatives of free banking include:
Lack of regulation and oversight can lead to financial instability and crises.
Banks may engage in risky behavior in order to increase profits, which can lead to financial instability.
It may lead to a lack of uniformity in currency, which can make trade and commerce more difficult.
It can lead to a concentration of power among a few large banks, which can have negative effects on the economy.
Some negative real life examples of how this happened in the USA in the past:
In the 19th century, the United States had a system of free banking, which allowed state-chartered banks to issue their own banknotes.
During this time, many banks issued banknotes, leading to a large number of different currencies in circulation.
One example of this was in the state of Michigan, where there were over 150 different types of banknotes in circulation. This led to confusion and inconvenience for merchants and consumers, as they had to constantly determine the acceptability and value of the various banknotes.
Another example is the "wildcat banking" which is a term used to describe the practice of banks issuing large amounts of banknotes without sufficient reserves to back them up. This led to a number of bank failures and financial crises, as people lost faith in the value of the banknotes they held.
The panic of 1837 was a financial crisis that resulted in many bank failures and a severe economic recession that lasted for several years. This crisis was partly due to the wildcat banking practices and the lack of oversight and regulation in the banking system.
These examples demonstrate the negative consequences of free banking, which ultimately led to the U.S government's decision to create a national currency and establish a central bank, the Federal Reserve in 1913.
Some positive examples:
During the free banking era in the United States, there were some examples of successful banks that were able to maintain the stability and acceptability of their banknotes.
One example is the Bank of Rockland in Maine, which was known for its sound banking practices and conservative management. This bank was able to maintain the stability and acceptability of its banknotes, which led to it being widely accepted and trusted by the public.
Another example is the Bank of Savings in New York City, which was known for its innovative banking practices. The bank pioneered the concept of savings accounts for the working class, allowing them to save and earn interest on their money. This helped to promote financial stability and economic mobility for the working class.
Additionally, some banks during this era were able to create a successful business model by focusing on a specific niche, like agricultural banks that focused on lending to farmers, or industrial banks that focused on lending to manufacturers. This helped to promote economic growth in these specific sectors.
Overall, during the free banking era, the banks that were able to maintain the stability and acceptability of their banknotes, and engage in sound banking practices, were able to create a positive impact on the economy.
Future shock…
How would a bitcoin standard with one global money that doesn’t discriminate effect this?
One standard that no one has to worry about that is globally accepted.
One network where the tools are instant and digital.
One where payments/money can finally move at speed of commerce.
We are on the precipice of true change and this decade will render much of life completely different.
What do you see when it comes to payments and how things change?
Stay strong,