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.
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Last update: July 19, 2001