Sometimes people assume I'm opposed, but I'm actually not strongly opposed - I definitely see it's benefits. I just worry about some of the risks. Two questions came to mind today about it:
1. Would it be feasible or desirable to have a central bank with central bank money in a free banking system? I don't really worry about the "wildcat" stuff - what I worry about with free banking is really that credit could contract across the banking sector. I've read some of Kevin Dowd's responses to Goodhart on that, and either he's not making a convincing argument against that concern, or I'm not understanding his argument (or, of course, both). But could you just address this by having a central bank that issues federal reserve notes the way we have now, with banknotes fluctuating against that (much like Keynes's proposed bancor)? I don't see how this would threaten the virtues of competing monies, and it would seem like it would address the concerns about sufficient elasticity.
2. This is more of a question than a suggestion: how does foreign exchange work in a free banking system? Are foreigners expected to keep up with all the competing monies? I can't imagine free banknotes really circulated as foreign exchange before (although perhaps they did). I imagine it was gold, right? If my suspicions of how free banking might hamper international trade are correct, that might be another reason to issue federal reserve notes alongside banknotes. Foreigners would be much more likely to take federal reserve notes, and internally banknotes would trade against federal reserve notes at varying rates. Does that sound right?
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