The historical evolution of the market-based economy in the US, notedly, that the Federal Reserve system for central banking was not established until 1913, and the US was served by two short-lived national banks as well as thousands of state banks and other institutions prior to 1913. During the 19th century, many of these banks would issue their own paper currency (bank notes) that were exchangeable for gold or silver. The paper notes were more convenient to use than metal coins, so they were widely circulated in the economy. At the peak, more than 7,000 different institutions issued bank notes. The key disadvantage of having thousands of different kinds of bank notes circulating through the economy was the uncertainty associated with exchanging these notes. Accordingly, some people would not accept notes issued by unfamiliar banks, which hampered the pace of economic activity.

Suppose the Federal Reserve allowed banks to issue their own digital currencies starting in 2021. Would we have the same problem with uncertainty that arose with paper bank notes in the 1800’s? Would you accept payment in the form of a digital currency issued by an unfamiliar bank?