Currency Boards and Free Banking

Abstract

In this century, three types of monetary systems have predominated: central banking, free banking, and currency boards. Central banking is familiar to us all, because it is today the monetary system of almost every country. Free banking once existed in approximately seventy countries during the 1800s and the early 1900s. Today there are no free banking systems, but free banking is enjoying an intellectual revival as a theoretical alternative to central banking, thanks to the work of economists such as Lawrence H. White, whose essay elsewhere in this volume described free banking in more detail.

The currency board system, unlike free banking, is witnessing a real revival: it has existed in approximately sixty-five countries. Unlike free banking, it still exists today in Hong Kong, Brunei, the Falkland Islands, Gibraltar, Argentina, Estonia, Lithuania, and (in greatly modified form) Singapore (Hanke and Schuler 1994). And if all goes according to plan, Bosnia and Bulgaria will have currency board systems in 1997. We think the currency board system is well suited for many countries today.

Keywords: Currency Boards, Free Banking, Steve Hanke, Dowd, Timberlake, Money and the Nation State