Currency School

Currency School is this British group originated from the writings of David Ricardo in opposition to the Banking School. The Currency School advocated the "currency doctrine" in the nineteenth century controversy over the laws which should govern the Bank of England and form the basis of the British monetary system. The "currency doctrine" maintains that all future changes in the nation's quantity of money should correspond precisely with changes in the nation's holdings of monetary metal (after 1853, gold only). In general, the Currency School opposed free banking principles and the legal sanction for any discretionary increases or decreases in the nation's quantity of money, which, in their opinion, included banknotes but not demand deposits subject to transfer or withdrawal by check. In short, the School opposed the practice of issuing fiduciary banknotes against commercial paper and government securities and sought a legal ban on the issue of any new banknotes except against 100% gold reserves.

The Currency School was successful in incorporating its ideas into the Bank (Peel's) Act of 1844. However, this Act, while prohibiting further fiduciary issues of banknotes, permitted a great expansion of circulation credit in the form of demand deposits. Consequently, the Act failed to limit the increase in fiduciary media as the Currency School had anticipated.