Self liquidating paper theory postdating a check law
The farmer, for his part, might write an IOU to the banker, promising to pay 0 after 1 year.
At a 10% interest rate, this IOU or "bill" will be discounted to 0.
At this point each paper dollar will be worth 1 ounce of silver in the open market.
It was the underlying dispute of the Bullionist debates of 1810, the Banking School/Currency School debates of the 1840s, the Greenback debates of the 1870s, etc.If it had, there would have been no role for interest rates.(source) It did not become a major policy tool of the Federal Reserve until after Benjamin Strong, governor of the New York Federal Reserve Bank died in October 1928.Moreover, if there happen to exist regulations that inhibit private intermediation – for example regulations that prohibit banks from issuing bearer notes that make a central bank the monopoly issuer of currency-like assets, then the central bank ought to conduct open-market operations or provide a discount window in order to vitiate such restrictions.By doing this, it brings together borrowers and lenders who might otherwise not be matched.