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# Bank Circulation Limits

## Definition

The maximum amount of paper money that can circulate in an economy without causing instability or returning to the issuing bank for redemption. This limit is determined by the needs of commerce and the quantity of precious metals that would otherwise circulate.

## Source Chapter

Book II, Chapter 2

## Context

Smith analyses how banks must limit their note issuance to the amount that can be absorbed by the economy's circulation needs. He explains the mechanisms by which excessive circulation returns to the bank and the consequences of exceeding these limits.

## Economic Domain

Regulation

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