Lawrence White – Free Banking in the Age of Crypto

Larry White is a professor at George Mason University, a senior fellow at the Cato Institute’s Center for Monetary and Financial Alternatives, and he has previously been a visiting scholar at the Federal Reserve Bank of Atlanta.

Professor White is one of the foremost authorities on ‘free banking’ – a monetary regime that has been present in several countries historically, in which notes are issued competitively by a network of banks (typically with gold held on reserve) with no central bank backstop. His dissertation on the long, successful episode of free banking in Scotland in the 18th and 19th centuries is a seminal paper demonstrating that free banking can result in a stable system with virtually no inflation, few bank failures, no over-issue of notes, and no requirement for insurance in the form of socialized losses. Larry has also written about the virtues of dollarization, especially the market-driven versions of the phenomenon, popularizing the case of Ecuador.

As an advocate of monetary alternatives, Larry has long been interested in cryptocurrency, penning a note in 2014 entitled ‘Can Bitcoin Become a Major Currency?‘ He also periodically covers cryptocurrency and related projects like Facebook’s Libra on the excellent Cato blog, Alt-M. In short, Larry’s work is essential reading for anyone pondering alternatives to contemporary monetary orthodoxy.

For the purposes of a series exploring the potential for public blockchains to accelerate ‘popular’ or unofficial dollarization, Larry was an obvious choice. We explore whether tokenized fiat circulating on blockchains can increase global access to the dollar – and why they might succeed where prior dollarization movements failed. We also cover objections to a central bank digital currency, the prospects for a return to free banking today, Larry’s views on Bitcoin, and whether transactional privacy can be retained in a digital age.

  • Why CBDCs might not be a good idea
  • Why the Libra should be dollar-denominated (note: this episode was recorded prior to reports that Libra would offer a tokenized version of the USD)
  • Official versus popular dollarization
  • The legacy of dollarization in Ecuador
  • How the mere threat of dollarization has a disciplinary effect on central banks
  • Argentina’s pseudo-dollarization
  • How free the US ‘free banking’ era really was
  • How the Scottish free banking system worked
  • What would have to change for free banking to re-emerge today
  • How offshore banking is a reprise of sorts to free banking
  • The prospects for bitcoin banks issuing notes – and one problem with the idea
  • Whether bitcoin’s inelasticity of supply is a virtue or a vice
  • The government’s reaction to the creation of private currencies
  • The prospects for restoring a cash-like standard of privacy and autonomy in a digital context
  • Larry’s opinion of MMT
  • How inflation should be measured – and whether the CPI is sufficient
  • The prospects for crypto-dollarization
  • Why criminality is an insufficient reason to disfavor cash

For those listeners looking to dive deeper into Larry’s body of work, we recommend: