The Law of National Guaranteed Banks in Argentina (1887-1890): Free Banking Failure or Regulatory Failure?
April 3, 2011
The Independent Review, Vol. 16, No. 4, pp. 569-590
Among the cited historical cases of free banking is the National Law of Guaranteed Banks in Argentina (1887-1890), a system which proved to be unstable. This historical case presents relevant risks that are attributed to free banking, the absence of proper regulation and a formal lender of last resort. As guaranteed banks vigorously expanded the money supply, they ultimately created a banking crisis.
The law, however, imposed very specific, though inefficient, requirements and regulations on money and banking. These regulations changed the economic incentives altogether and created a dangerous dynamic that was the real cause of the crisis. The Law of National Guaranteed Banks, then, is not a failed historical experiment of free banking but, rather, a failure to effectively regulate the market.
Keywords: guaranteed banks, free banking
JEL Classification: G28, N16, N26Accepted Paper Series
Date posted: April 4, 2011 ; Last revised: March 13, 2012
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