F.A. Hayek and his rational choice of monetary arrangements

This paper addresses the perspective of Hayek’s doctrine on monetary arrangements in the economy and his favorable argument for an international central bank over national central bank. I also discussed Hayek’s view on free banking (i.e. for the free issue of bank notes) that would enable the banks to provide more and cheaper credit. Furthermore, Hayek comes up with an intellectual debate on “rational choice” of monetary arrangements whether the commercial banks should have the right to issue bank notes (demand for free banking) which can be redeemable in the established national gold or silver currency or an international central bank. This paper focuses on Hayek’s overall philosophy on international money mechanism and his intellectual debate of rational choice between the two arrangements – free banking or an international central bank and his concerned over unstable arrangements in money mechanism,which, he believes, profoundly affects economic and social conditions of people and government. Therefore, to reach the conclusion, I outlined Hayek’s perspectives on central bank and government, then international gold standard, and finally, his choice between free banking and an international central banking which is central theme of this paper.