Thursday, 16 October 2014

The Central Bank with an expanded role in a purely electronic monetary system

Blogger Ref 

The following is a link to a paper by Trond Andresen


Physical currency (bills and coins) is being phased out as an important means of exchange both in developed and developing countries. Transactions are increasingly done by debit card, computer, and mobile phone. This technologically driven process opens up some very useful possibilities, among these new and – for society – beneficial roles for the Central Bank. The paper assumes a scenario where the country in question issues its own currency, and all money is "electronic" – no bills and coins. This gives an extra impetus to the sovereign money solution; all deposits are at the Central Bank.

The paper also argues that in such a system – where banks are not allowed to create "credit money" when issuing loans (in this resembling the "100% reserve" solution supported by many reformers) – the economy need not, in spite of this, be "starved" of credit for investment – a warning that is not only sounded by the defenders of today’s financial system, but also by many of its critics. This goal might be achieved by the unconventional trick of letting commercial banks create the needed sovereign money at the Central Bank for their lending.

A third point of the paper is to argue that simplification of the financial system should be a goal in itself.

JEL codes B50, E5, E40, E42, E44, E58, G20, G28, H12, H62

No comments:

Post a Comment