Free-banking and financial stability in Peru

Luis Felipe Zegarra

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

The theory of free banking establishes that free competition in note issue decreases the probability of financial instability and currency depreciation. This article analyzes the Peruvian experience between 1862 and 1878 and shows that, consistent with the theory, free banking did not lead to financial instability. On the contrary, government intervention in the banking sector contributed to the expansion of paper money and to the decline in the ability of banks to face the demand for specie.

Original languageEnglish
Pages (from-to)187-226
Number of pages40
JournalQuarterly Journal of Austrian Economics
Volume16
Issue number2
StatePublished - 2013
Externally publishedYes

Keywords

  • Free banking
  • Latin america
  • Monetary theory
  • Peru

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