Banking School

The British Banking School was a group opposed by the Currency School in the nineteenth century controversy over the laws which should govern the Bank of England and form the basis of the British monetary system.

Drawing on the writings of Adam Smith (1723-1790), the Banking School espoused what has become known as the "Banking Principle" or "Principle of Fullarton." This principle holds that as long as a bank maintains the convertibility of its banknotes into specie (gold), for which it should keep "adequate" reserves, it is impossible for it to overissue its banknotes against sound commercial paper with fixed short term (90 days or less) maturities.

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