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“Were free banking to reemerge today, it would probably be based, not on a gold standard, but on irredeemable paper (‘fiat’) base money issued by a former or extant central bank. Under this form of free banking, the price level is no longer given, and conventional monetary policy questions remain relevant. In particular, would free banking on a fiat standard simplify or complicate the control of nominal variables, including the price level and nominal income? Would it be easier or more difficult to adhere to a simple monetary rule? What would happen if the stock of base money were frozen as a means for ruling out discretion altogether?” Read more.

“Free Banking and Monetary Control”
George Selgin
The Economic Journal, Vol. 104, No. 427 (Nov., 1994), pp. 1449-1459

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