Note-Issuing Agency

In the early periods of banking development, almost every bank enjoyed the right of issuing notes, This led to frequent troubles. Notes were over-issued and the resulting inflation disorganized the cu.rrency sys- tern and brought other serious economic and financial consequences. The government, therefore, had to exercise strict control over the issuing of notes. Grdually, the practice of entrusting this important function to the chief bunk of the country, the central bank. became established. Now, in almost every country ,the central bank enjoys a monopoly of note issue, Such a monopoly is of great importance, It gives uniformity to the system of note-issue. Moreover, thc notes of a central bank have greater prestige and even in times of shaken confidence, are seldom presented for encashment into coins or metal. Above all, tlus monopoly gives the central bank control over othcr banks in thc matter of expansion of credit, since it i~ thc cash reserve which constitutes the ultimate limit of such expansion. (The various systems of note-issue have already been given in Chapter 49),