Float on a note

Neil Wallace, Tao Zhu

Research output: Contribution to journalArticlepeer-review

10 Scopus citations


From 1863-1914, banks in the U.S. could issue notes subject to full collateral, a tax on outstanding notes, redemption of notes on demand, and a clearing fee per issued note cleared through the Treasury. The system failed to satisfy a purported arbitrage condition: the yield on collateral exceeded the tax rate plus the product of the clearing fee and the average clearing rate of notes. The failure is explained by a model in which note issuers choose to issue notes only in trades that produce a low clearing rate (high float), but in which there are diminishing returns to additional note issue.

Original languageEnglish (US)
Pages (from-to)229-246
Number of pages18
JournalJournal of Monetary Economics
Issue number2
StatePublished - Mar 1 2007

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


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