Bank of England not necessary, says landmark IEA ‘free banking’ book

A new book outlines how the ‘free banking’ alternative to central banks can and has delivered stability and prosperity.

  • Central banks have consistently failed to keep down inflation and ensure financial stability.
  • There have been at least sixty historical episodes of free banking, ranging from several years to over a century.
  • Scotland, France, and the antebellum United States, among many other examples, demonstrate the possibility of economic development without a central bank.

The Bank of England’s failure to control inflation following the Covid-19 pandemic has prompted widespread calls for reform. A new book from the free market think tank the Institute of Economic Affairs goes further by challenging the conventional wisdom that central banks are even necessary.

The Experience of Free Banking outlines a monetary system where private banks issue competing banknotes, usually anchored to a commodity like gold or silver, replacing the central bank’s role. This approach empowers the public to choose or discard a bank’s currency, promoting a competitive and stable banking environment.

“The historical record shows that free banking is not prone to inflation, does not produce banking instability and does not produce a banking monopoly,” says book editor Kevin Dowd, Professor of Finance and Economics at Durham University Business School. “These are big pluses. Plus if it worked in the past, then there is every reason to think it would work again in the future.”

The book comes as Argentina’s new President Javier Milei has pledged to abolish the country’s central bank following triple-digit inflation and decades of monetary mismanagement.

Between 1716 and 1845, Scottish banks issued competing banknotes secured to fixed quantities of precious metals like gold or silver with few government restrictions on the sector. Scotland’s free banking period delivered stability, low inflation, and economic growth. 

Adam Smith, in The Wealth of Nations, highlighted the significant role played by Scottish banking in the country’s economic development. Scotland’s per capita income increased from half of England’s in 1750 to nearly equal by 1845. 

Scottish banks over this period also failed at half the rate of England’s, demonstrating the system’s stability.  It also delivered innovations such as extending bank branches, interest payments on deposits and an early form of overdraft.

Scotland’s successful period under free banking contrasts with the record of the Bank of England, which has played a central role in multiple economic crises, episodes of financial instability and inflation. Economist Kurt Schuler, a chapter author, writes “that London was the storm centre of so many eighteenth- and nineteenth-century panics suggests that the Bank of England’s effect on the world financial system may have been detrimental.”

Kevin Dowd, Professor of Finance and Economics at Durham University Business School, said:

“Free banking is not some untested economic theory, still less one that has failed. On the contrary, free banking has been tried many times in the past and the results have been remarkable. Because free banking systems were based on commodity standards – typically the gold standard in English-speaking countries – they delivered long-run price stability. They were also highly innovative, strongly capitalised and much more stable than contemporary banking systems. Their historical experience shows that free banking systems are much superior to modern systems of central banking. 

At a fundamental level, the lesson here is that historical experience shows that banking and politics make for a truly toxic mix.” 

Steve H. Hanke, Professor of Applied Economics, The Johns Hopkins University, said:

“Kevin Dowd, a first-rate scholar who has produced pathbreaking research in the field of free banking, has put together a star-studded cast to produce an anthology of what is destined to become a free banking ‘Bible’.”

Alberto Mingardi, Professor of History of Political Thought at IULM University in Milan, Director General of the Istituto Bruno Leoni, and co-author, said:

“The magic of modern politics consists in easing us into seeing its endeavours as inevitable and necessary. Consider central banking. How could you dare to think that there could be alternatives to it? 

“This book, first published in 1992 and now released by the IEA in an expanded edition, will help you think the unthinkable. Not only alternatives to central banking are hardly inconceivable – but they indeed existed, long before all countries had a central bank. Kevin Dowd put together an impressive arsenal of historical cases. I felt privileged I could contribute to this book.”

Kurt Schuler, author of three chapters in the book and senior fellow in financial history at the Center for Financial Stability (New  York), said:

“Much of what economists tell each other and the public about the nature and necessity of central banking is made up, without historical grounding. This book, in an enlarged second edition, explains the extensive but still generally neglected experience of competitive provision of currency. 

“Far from being the story of a past that will never return, The Experience of Free Banking is highly relevant to today’s debates about privately provided cryptocurrencies, central bank digital currencies, and financial regulation.”


Notes to Editors

  • Free banking is a banking system in which banks issue their own notes under competitive conditions while typically operating on a commodity standard, in the absence of a central bank and in a legal environment in which the public are free to accept or reject bank currency as they choose.
  • Experience of Free Banking is the revised and extended second edition of a book originally published by Routledge in 1992.
  • This second edition includes an overview of the world experience of free banking, surveying no fewer than sixty different historical episodes. This is followed by fifteen chapters on the experiences of Australia, Belgium, Canada, Chile, Colombia, the Chinese city of Foochow (Fuzhou), Revolutionary France, Ireland, Italy, Northeast China, Peru, Scotland, Sweden, Switzerland and the ante-bellum United States.

Contact: / 07763 365520

You can download a copy of The Experience of Free Banking [PDF].

Kevin Dowd has written a preview of the book for DUBS Impact, which can be viewed here.


  • Introduction – The Experience of Free Banking, by Kevin Dowd (p.1)
  • The World History of Free Banking, by Kurt Schuler (p.13)
  • Free Banking in Australia, by Kevin Dowd (p.50)
  • Free Banking in Belgium, 1835-1850, by Patrick Mardini and Kurt Schuler (p.81)
  • Free Banking in Canada, by Kurt Schuler (p.99)
  • Free Banking in Chile, by Juan Pablo Couyoumdjian (p.114)
  • Free Banking in Colombia, by Adolfo Meisel (p.129)
  • Free Banking in Foochow, by George Selgin (p.138)
  • Free Banking in France, 1796-1803, by Philippe Nataf (p.157)
  • Free Banking in Ireland, by Howard Bodenhorn (p.172)
  • Competitive Note Issue in Italy, 1860-1893, by Alberto Mingardi (p.192)
  • Free Banking in Early-Twentieth Century Northeast China, by Thomas R. Gottschang (p.218)
  • Free Banking in Peru, by Luis Felipe Zegarra (p.235)
  • Free Banking in Scotland before 1844, by Lawrence H. White (p.256)
  • Free Banking in Sweden, by Lars Jonung (p.285)
  • Free Banking in Switzerland After the Liberal Revolutions in the Nineteenth Century, by Ernst Juerg Weber (p.314)
  • US Banking in the Free Banking Period, by Kevin Dowd (p.302)

About the authors

Kevin Dowd 

Kevin Dowd ( is Professor of Finance and Economics at Durham University

Howard Bodenhorn 

Howard Bodenhorn ( is a professor in the John E. Walker Department of Economics at Clemson University and a research associate at the National Bureau of Economic Research.

Juan Pablo Couyoumdjian 

Juan Pablo Couyoumdjian ( is an associate professor at the Facultad de Gobierno, and Facultad de Economía y Negocios, at the Universidad del Desarrollo, Santiago, Chile.

Thomas R. Gottschang 

Thomas R. Gottschang ( is Professor of Economics and Asian Studies at the College of the Holy Cross.

Patrick Mardini 

Patrick Mardini is founder and President of the Lebanese Institute for Market Studies.

Adolfo Meisel 

Adolfo Meisel ( is Rector of the Universidad del Norte, Barrangquilla, Atlántico, Colombia.

Alberto Mingardi 

Alberto Mingardi ( is Full Professor of History of Political Thought at IULM University in Milan and the Director General of the Istituto Bruno Leoni.

Philippe Nataf

Philippe Nataf ( is Directeur de Recherche à l’Institut de statistiques de l’Université de Paris.

Kurt Schuler 

Kurt Schuler ( is Senior Fellow in Financial History at the Center for Financial Stability in New York City. 

George A. Selgin 

George A. Selgin ( is the Director of the Center for Financial and Monetary Alternatives based at the Cato Institute. 

Ernst Juerg Weber 

Ernst Juerg Weber ( is Senior Honorary Research Fellow at the Department of Economics, University of Western Australia.

Lawrence H. White 

Lawrence H. White ( is Professor of Economics at George Mason University. 

Luis Felipe Zegarra 

Luis Felipe Zegarra ( is Professor, CENTRUM Católica Graduate Business School, Pontificia Universidad Católica del Perú.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.

More from Prof Kevin Dowd
Calls for further monetary expansion are cuckoo
In today’s Telegraph Ambrose Evans-Pritchard gives a splendid analysis of the dire...
Read More
0 replies on “Bank of England not necessary, says landmark IEA ‘free banking’ book