Free Banking Law and Legal Definition

Free banking is an establishment where note-issuing banks are allowed to set up in the same way as any other type of business. In free banking, banks are regarded same as other commercial enterprises. No special rules or privileges are available to banks. Total supply of bank notes and deposits are determined by free market sources. In free banking there will be no central bank to control other commercial banks. The market is left free to determine what commodity would be accepted as money. The market decides the relative price of the money commodity. In free banking bank notes are issued in the form of paper and metal tokens. Banks mutually accepts each others notes.