…This is a model that the world has adopted from the British. The British were the first to introduce the model of central banking following the proposals of David Ricardo, in particular, who, in 1816, wrote a small booklet in which he proposed the establishment of a central bank that should issue a paper currency linked to gold, but not to gold coins, but only to gold bullion so as to discourage the redemption of the paper notes against metallic money. Ricardo realized full well that if the citizens had a free choice between metallic money on the one hand and paper notes on the other hand, precisely because they lack sufficient information and general economic knowledge to evaluate these instruments correctly, they would always prefer the sure thing and opt for silver coins and gold coins. And therefore, he wanted to out-rule this possibility and make sure that the population used only paper notes.
Podcast: Play in new window | Download