George Selgin defines free banking as a monetary arrangement where currency is competitively supplied by private commercial banks and, consequently, not monopolized by a central bank.
He sets as examples the Scottish and Canadian’s free banking systems, which flourished in the eighteenth and nineteenth centuries; yet, he clarifies that a completely free banking structure has not existed, since there has always been some form of government involvement. He discusses the possibility and feasibility of implementing such system in the present time, stating, as well, the negative macroeconomic implications that a central banking system has, especially for a developing country such as Guatemala, and suggests that more liberty and less government intervention could be a source of wealth and growth.
Selgin concludes by explaining how transaction costs are managed within this system, in addition to the effectiveness it entails when dealing with crises, such as bank runs or instability, in the current banking organization.
Credits
What is Free Banking? George Selgin
Business School Building, EN-605 Universidad Francisco Marroquín Guatemala, July 31, 2012
A New Media-UFM. Guatemala, September 2012 Camera: Diego Chajón; digital editing: Claudia de Obregón; index and synopsis: Sergio Bustamante; content reviser: Sofía Díaz; publication: Claudia de Obregón, Sofía Díaz
This work is licensed under a Creative Commons 3.0 License Este trabajo ha sido registrado con una licencia Creative Commons 3.0
George Selgin
George Selgin is professor of economics at the Terry College of Business, University of Georgia;a senior fellow at the Cato Institute and an associate editor of Econ Journal Watch. He formerly taught at George Mason University, the University of Hong Kong, and West Virginia University. His main research areas are monetary and banking theory, monetary history, and macroeconomics. Selgin holds a PhD from New York University and a BA from Drew University.
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