Gerald P. Dwyer Jr.
Economic Review, Vol. 81, Nos. 3-6, 1996

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Banks in the United States issued currency with no oversight of any kind by the federal goverment from 1837 to 1865. Many of these banks were part of "free banking" systems with no discretionary approval of entry into banking, and these banks issued notes that were used for payments in transactions just as Federal Reserve notes are today. There was no central bank or goverment insurance, and the ultimate guarantee of the value of a bank's notes was the value of the bank's assets. As the author indicates, these banknotes have similarities to some forms of electronic money.

Free banking in the United States sometimes has been equated with wildcat banking, a name that suggests that opening a bank has much in common with drilling an oil well. The author examines notorious instances of supposed wilcat banking and finds little evidence that free banks were imprudent, let alone financially reckless. Instead, episodic difficulties faced by free banks occurred because of developments outside the banking systems.

December 1996