Nevertheless, the government (including also the central bank) has maintained a monopoly on issuing notes ever since. This effectively undermined the reform, and this is how we ended up to our current monetary system. The experiments were never actually abandoned, but banks were able to circumvent regulation by issuing deposits instead of notes. The National Acts of 18 implemented full-reserve banking in the US. In the UK, the Bank Charter Act of 1844 prohibited private money creation by requiring that bank-issued notes should be fully backed by government money or gold. Today, it is hard to imagine that each bank would issue their own notes, but that was the case two centuries ago. At the time, private bank-issued notes were the prevailing means of payment. dissertation “Full-Reserve Banking: Separating Money Creation from Bank Lending” (University of Helsinki).įull-reserve banking was tried out in the 19 th century. This article summarizes some of the key points made in my Ph.D. Although it is hard to associate the positive developments directly with full-reserve banking experiments, at least it should be clear that they did not have a destabilizing impact on the economy. It is assuring that macroeconomic indicators pointed mainly upwards after the reforms were implemented. Full-reserve banking was tried out in the UK and US in the 19 th century.
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