Free Banking Around the World

Free banking is a fascinating concept that's been practiced in various forms around the world. In Sweden, for example, a country with a strong free banking tradition, the central bank doesn't control the money supply, and instead, private banks issue their own notes and coins.

In the 19th century, Sweden had a system of free banking where banks issued their own notes, which were backed by gold reserves. This system allowed for a high degree of financial freedom and innovation. The Swedish Riksbank, the country's central bank, played a more passive role, focusing on maintaining the stability of the financial system.

Today, Sweden has a mixed banking system, with both free and regulated banking practices coexisting. The country's experience with free banking has been studied by economists and policymakers around the world, offering valuable insights into the potential benefits and risks of such a system.

If this caught your attention, see: History of Central Bank Digital Currencies by Country

Free banking has a rich history that spans over 1,000 years, with the first system of competitive issuance of notes emerging in China. This system has existed in more than 60 countries.

In the 19th and early 20th centuries, free banking was widespread, with notable episodes in Canada, Colombia, Fuzhou, France, and Ireland. These systems were eventually replaced by monetary arrangements with monopoly issues of notes.

Several reasons contributed to the demise of free banking, including economic theories that claimed the superiority of central banking, the desire to imitate more advanced economies, and the desire of national governments to collect seigniorage. Financial crises in some free banking systems also led to demands for a replacement system.

Prominent economists like Adam Smith defended free banking in the 18th and 19th centuries, but after the mid-19th century, it received little attention. It wasn't until 1976 that free banking began to gain renewed attention with Friedrich Hayek's book, "The Denationalisation of Money".

Here are some of the most notable episodes of free banking:

Switzerland and Scotland are two countries that have had experiences with free banking in the past.

In Switzerland, several cantons deregulated banking in the 19th century, allowing free entry and the issue of notes. This led to a reduction in the problem of varying note qualities and exchange rates.

The Swiss experience was followed by the enactment of the Federal Banking Law of 1881, which centralized note issue and brought order to the banking system.

Scotland, on the other hand, had a highly stable and competitive banking system that lasted from 1716 to 1845.

Readers also liked: I M B Bank Share Price Today

Switzerland has a fascinating banking history, where several cantons deregulated banking in the 19th century, allowing free entry and the issue of notes. This led to a centralisation of note issue, which reduced the problem of notes with varying qualities and exchange rates.

The Swiss cantons retained jurisdiction over banking until the enactment of the Federal Banking Law of 1881.

You might enjoy: Mortgage Notes for Sale from Banks

Scotland is a great example of a country that had a highly stable and competitive banking system through free banking. The system lasted from 1716 to 1845.

The Bank of Scotland, the Royal Bank of Scotland, and the British Linen Company were the three chartered banks that organized the system. These banks were joined by numerous unchartered banks.

This system resulted in a highly stable banking environment.

Discover more: Net Stable Funding Ratio

Sweden had two periods of free banking, from 1830 to 1860 and again from 1860 to 1902. This allowed private banks to issue their own money, with the Stockholms Enskilda Bank being a notable example.

The bank crisis in 1857 led to a surge in support for private banks and money issuers, with the parliament adopting a new bank law in 1864 that deregulated interest rates. This move marked the beginning of the Swedish free banking era.

In the decades that followed, the Swedish economy experienced stability, with only one bank failure related to fraud in 70 years. This is a testament to the effectiveness of free banking in maintaining economic stability.

After 1874, no new private banks were founded in Sweden, but the existing ones continued to operate until the issuing of private money was prohibited in 1901.

Expand your knowledge: Banca Intesa San Paolo New York

In the United States, the period from 1837 to 1864 is often referred to as the Free Banking Era, but it's a misnomer in terms of the definition of "free banking". The term "free banking" was used to describe state banking systems based on laws that made it necessary for new entrants to secure charters, subject to a vote by the state legislature.

Banks in the US during this time had to provide security for their notes through gold reserves and purchasing securities deemed acceptable by state law, which often included bonds of state governments. The depreciation of these bonds was the chief cause of bank failures in various episodes.

The lack of branch banking caused state-issued banknotes to be discounted at varying rates once they had traveled any considerable distance from their sources, which was an inconvenience.

Lawrence H. White, a professor at the University of Missouri-St. Louis (UMSL), has made significant contributions to the study of free banking in the United States. He's particularly known for his work on the history of banking and monetary policy.

Professor White has written extensively on the topic, highlighting the benefits of free banking systems, where banks issue their own currency and are subject to market discipline. This approach encourages banks to be more responsible with their lending practices.

In his research, White has shown that free banking systems can be more stable and efficient than government-controlled systems, where banks are often bailed out by the government. This is because free banking systems allow banks to fail if they make poor decisions, which helps to prevent moral hazard.

White's work has been influential in shaping the modern understanding of free banking, and his ideas have been applied in various forms around the world.

Here's an interesting read: Is Wells Fargo Online Banking down Today

The Free Banking Era in the US, which spanned from 1837 to 1864, was a misnomer in terms of the definition of "free banking" because it didn't allow for true freedom in banking.

New entrants in the banking industry had to secure charters, which were subject to a vote by the state legislature and prone to corruption.

The general banking laws of the time restricted banks' activities in various ways, including limiting them to a single office.

US free banks had to provide security for their notes not only through gold reserves but also by purchasing and surrendering certain state-approved securities, which often included bonds of state governments.

The depreciation of these bonds was a major cause of bank failures in various episodes, as many banks in a state failed simultaneously.

The lack of branch banking meant that state-issued banknotes were discounted at varying rates once they had traveled any considerable distance from their sources, causing inconvenience.

Bank failures during the Free Banking era were also attributed to restrictions on banks' portfolios of assets.

Free banking offers several benefits, including increased competition among banks, which can lead to lower fees and better services. This is because free banks operate on a self-regulatory model, where they are accountable to their customers rather than government regulators.

With free banking, customers have more control over their accounts, allowing them to make their own decisions about how to manage their finances. They can easily switch between banks if they're not satisfied with the services they're receiving.

Free banking also promotes financial literacy and responsibility, as customers are forced to take a more active role in managing their accounts. This can lead to better financial outcomes and a reduced reliance on credit.

Expand your knowledge: Bank of America Paying Customers

The Commerce Free Checking Account is a great option for those who want flexibility in their banking. You can open this account with a minimum deposit of just $25.

One of the best things about this account is that it has a $0 monthly service fee, which is a huge perk. This means you won't have to worry about any extra charges eating into your account balance.

You'll also appreciate the free paper statements and free paperless statement with images that come with this account. This is especially convenient for those who prefer to keep their financial documents digital.

To make banking even easier, you can connect your account to your favorite digital wallet, activate online banking, or download the Commerce Bank Mobile App. This way, you can manage your finances on the go and have complete control over your account.

Here are some key features of the Commerce Free Checking Account at a glance:

Overall, the Commerce Free Checking Account is a solid choice for those who want a hassle-free banking experience.

With free banking, you can enjoy instant access to your funds without any extra charges. At no extra cost, you may have instant access to your funds—up to $500—of the checks you've deposited.

You can also take advantage of All Day Deposit, which is available to you.

Expand your knowledge: Which Bank Gives Free Access to Airport Lounges