Board of Governors of the Federal Reserve System International Finance Discussion Papers Number 599 December 1997 Private Payments Systems in Historical Perspective: The Banco Central System of Mexico Patrice Robitaille NOTE: International Finance Discussion Papers are preliminary materials circulated to stimulate discussion and critical comment. References in publications to International Finance Discussion Papers (other than acknowledgment that the writer has had access to unpublished material) should be cleared with the author or authors. Recent IFDPs are available on the Web at www.bog.frb.fed.us Private Payments Systems in Historical Perspective: The Banco Central System of Mexico Patrice Robitaille* Abstract: Payments systems have grown considerably and have become increasingly complex, prompting regulators to reassess their roles and renewing interest in historical experiences with payments systems. In this paper, I study the Banco Central System of Mexico, which was a bank note par redemption and clearing system for other payments that operated in Mexico City from 1899 until 1913. I first describe the origins of the Banco Central System. I then consider whether it became prone to behavioral problems, as some observers contended. I find that although Banco Central was less well-positioned to address incentive problems relative to one of its counterparts in the United States (the Suffolk Bank of Boston), it did act to constrain bank behavior. However, considerable government intervention weakened the disciplinary role of Banco Central and thus made the system more prone to collapse. Key words: payments systems, free banking, competitive currencies, central banking * Economist, Division of International Finance, Board of Governors of the Federal Reserve System (
[email protected]).