AMER.MACRO: Par Clearance in the Domestic Exchanges: The Impact of National Bank Notes

---

of National
Bank Notes

EHS Abstract Submission
(c) 1998 EH.Net
-----------------------------------------------------------
Name: Ronnie J. Phillips
Email: rphillip@lamar.colostate.edu
Institution: Colorado State University

Co-author: P.A.V.B. Swamy, Office of the Comptroller of the Currency

Title: Par Clearance in the Domestic Exchanges: The Impact of National
Bank Notes

Internet Address of abstracted work: Not available on the internet.

By mail:
Ronnie J. Phillips
Department of Economics
Colorado State University
Fort Collins CO 80523-1771 USA

Language: English

Abstract:
Prior to the National Currency Act of 1863 and the National Banking Act of
1864, individual state-chartered banks issued currency denominated in
dollars but traded at values ranging above and below par value. Domestic
exchange markets in major cities throughout the United States traded bank
notes. Purchasers of bank notes used them as a means of payment. These bank
notes were ultimately redeemable in lawful money (legal tender). The
domestic exchange markets continued operations after 1863 but, after the
prohibitive tax on state bank issued bank notes, drafts were issued instead
of bank notes and the drafts exchanged at above or below their par values.
In addition, the drafts were subject to a fixed remittance or clearance
fee. This paper presents two models to test empirically whether the
existence of national bank notes served to push the domestic exchange rates
toward par value. The results provide support for the view of various
Comptrollers of the Currency, who argued that the National banking system
was working to eliminate the domestic exchanges, thus raising the question
whether the imposition of par clearance was a necessary and desirable
policy change since it involved the shifting of payment system costs from
the private sector to the Federal Reserve System. However, given
information asymmetries and the prohibition on interstate banking, it is
unlikely that the United States would have evolved toward par clearance
without further government intervention in the payment system.

Bibliography: Phillips, Ronnie J. and P.A.V.B. Swamy. "Par Clearance in
the Domestic Exchanges: The Impact of National Bank Notes." Research in
Economic History, Vol. 18, 1998, forthcoming.

Subject: H
Geographical Area: 7
Country/Region: USA
Time Period: 7
-------------------------------------------------------
Visit the library of Abstracts in Economic History or submit your abstract
at: http://www.eh.net/AEH