The questions explored by Warren Weber in this research project emerged from the May 2011 CFSP Workshop on the Optimal Design of Payment Systems.
Weber’s work suggests that early U.S. payment systems may have similarities with today's emerging payment systems in developing countries. By examining the historical example of the Suffolk Banking System, Weber’s project explores what the implications for monetary policy and economic systems today might be where the rise of mobile financial services has introduced new forms of privately issued monies.
As less developed countries become more developed, U.S. payment history suggests that it is highly likely that when these new monies are issued and backed by central bank money for retail transactions and remittances, there will be the need for some type of clearing arrangement for settling the claims of the various issuers against each other.
When this happens, important policy questions will emerge: How should such clearing arrangements be organized to improve economic welfare? Should clearing arrangements be run by mutual nonprofit organizations, by the central bank, or by private for-profit organizations?
Suffolk Banking System is the one instance of a private, for-profit clearinghouse in the United States. It operated from 1827 to 1858. To help inform today's policy decisions, Weber is reviewing evidence about the experiences a developed country (the U.S.) has had with the various types of organizational choices for clearing arrangements.
Weber will conclude his research with a field trip to Kenya and Tanzania, where mobile banking is on the rise, to examine extensions and applications on the ground.
Research Questions:
- Would a private, for-profit clearinghouse act like a Lender of Last Resort during financial panics? Or, can such behavior be expected only of nonprofit organizations such as a more traditional mutual clearinghouse or a central bank?
- What policy lessons can be drawn for today from types of clearing arrangements from the U.S. experience when it was in a far earlier stage of development?
- How well did the Suffolk Banking System do at promoting the safety and soundness of the banking system?
- What role should central banks play in monitoring and regulating epayment systems?
Data Notes:
n/a
Outcomes:
The following working paper has come out of this project thus far:
Status:
Completed