The theory of currency competition

Abstract

Twenty one years ago, few people will have that in a footnote to my The Constitution of Liberty 1 I wrote the following: Though I am convince that modern credit banking at it has developed requires some public institutions such as central banks, I am doubtful whether it is necessary or desirable that they (or the government) should have monopoly of the issue of any kind of money. The state has, of course the right to protect the name of the unit of money which it (or anybody else) issue, and, if it issue ‘dollars’, to prevent anybody else from issuing tokens with the same name. As it is its task to enforce contracts, it must also be able to determine what is ‘legal tender’ for the discharge of any obligation contracted. But theres seems to be no reason at all why the state should ever prohibit the use of other kinds of media of exchange, be it some commodity or money issued by another agency, domestic or foreign. One of the most effective measures for protecting the freedom of the individual, might indeed be to have constitutions prohibiting all peacetime restrictions on transactions in any kind of money or precious metals.