- This article uses content from the Wikipedia article on Free
banking under the terms of the CC-by-SA 3.0 license. Free
banking refers to a monetary arrangement in which banks are
subject to no special regulations beyond those applicable to
most enterprises, and in which they also are free to issue their
own paper currency (banknotes). In a free banking system, market
forces control the supply of total quantity of banknotes and
deposits that can be supported by any given stock of cash
reserves, where such reserves consist either of a scarce
commodity (such as gold) or of an artificially limited stock of
"fiat" money issued by a central bank. In the strictest versions
of free banking, however, there either is no role at all for a
central bank, or the supply of central bank money is supposed to
be permanently "frozen." There is, therefore, no agency capable
of serving as a "lender of last resort" in the usually
understood sense of the term. Nor is there any government
insurance of banknotes or bank deposit acc