Competition in Currency

Private Currencies

The US Federal Reserve holds the monopoly on providing currency for the United States. That was not always the case. Private banks used to issue their own notes. The limited inflation and greater economic stability that a decentralized currency provides could be an important boon to consumers. Banks in Hong Kong, Scotland and Northern Ireland “earn hundreds of millions of dollars annually” by issuing private money. Reintroducing such a system in the US market could mean “billions of dollars in annual profits” for US banks.

The Balance of Competing Banks

Compared to central banks, commercial banks are better equipped with the data and the motivation required to ensure the optimum levels of money supply. A system where competing private banks work together to match the supply of banknotes with demand is ideal because, even when one bank oversupplies, another will undersupply, keeping the system balanced. When a monopoly issuer, such as the Fed, governs the supply, it relies on a single set of experts. But competition lets the free market decide on the proper amount of money in the banking system.

In the past, competing US private banks...