William Roberds and François R. Velde
Working Paper 2014-9
August 2014

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Publicly owned or commissioned banks were common in Europe from the 15th century. This survey argues that while the early public banks were characterized by great experimentation in their design, a common goal was to create a liquid and reliable monetary asset in environments where such assets were rare or unavailable. The success of these banks was, however, never guaranteed, and even well-run banks could become unstable over time as their success made them susceptible to fiscal exploitation. The popularization of bearer notes in the 18th century broadened the user base for the public banks' money but was also accompanied by increased fiscal abuse. Wartime demands of the Napoleonic Era resulted in the reorganization or dissolution of many early public banks. A prominent exception was the Bank of England, whose adept management of a fiscally backed money provided a foundation for the development of central banks as they exist today.

JEL classification: E58, N13

Key words: central banks, exchange banks, public banks

This paper was written for the conference on "Money in the Western Legal Tradition" held at Cambridge in 2012. The authors are grateful to conference participants and to Warren Weber for comments on earlier versions. The authors are also grateful to Anja Amend-Traut and Markus Denzel for making their recently published monographs available for this survey. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta, the Federal Reserve Bank of Chicago, or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to William Roberds, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, 404-498-8970, william.roberds@atl.frb.org, or François R. Velde, Research Department, Federal Reserve Bank of Chicago, PO Box 834, Chicago, IL 60690, 312-322-2526, fvelde@frbchi.org.

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