Although the advent of fiat money has not rendered central banks any less capable of generating booms and busts, it has considerably complicated the possibility of fundamental reform because a fiat standard, unlike a gold or silver standard, must be monopolistically administered if it is to retain any value, and because allowing commercial banks the right to issue notes that are themselves redeemable in fiat money, whatever advantages such a policy may have, will not by itself deprive the fiat-money-issuing authority of its crisis-making capacity.
It is important that people recognize the route by which we came to the present impasse so that they might shed their essentially romantic notion of central banking and instead approach it, as Walter Bagehot once did, as a fundamentally dangerous institution—one still more in need of confinement and taming than it was in Bagehot’s own day.
George Selgin in the latest The Independent Review.
Sounds pretty spot on. We should permit private currencies redeemable in fiat notes buy it won’t change the fundamentals of the game.
TerjeP (say Tay-a)
12 Mar 10 at 7:34 am