The 100% money proposal and its implications for banking: the Currie–Fisher approach versus the Chicago Plan approach

The literature on the 100% money proposal often reveals some confusion when it comes to its implications for the banking sphere. We argue that this can be partly explained by a failure to have distinguished between two divergent approaches to the proposal: the “Currie–Fisher” (or “transaction”) approach, on the one hand, which would preserve banking; and the “Chicago Plan” (or “liquidity”) approach, on the other hand, which would abolish banking. This division among 100% money proponents stemmed, in particular, from different definitions of money, and different explanations of monetary instability. The present paper attempts to clarify this divergence of views.     

经济发展、结构变化与“货币消失”——兼对“中国之谜”的再解释

2 0世纪 90年代中后期以来 ,中国的“超额”货币供给与宏观经济运行表现出了新的特点。本文试图利用发展经济学方法 ,从“货币消失”问题入手 ,对这一时期经济增长、货币供给与通货膨胀之间的关系进行解释。我们发现 ,中国经济的两部门特点导致了阻碍经济发展的“结构约束”与“需求约束”。而“中国之谜”出现的新特点 ,很大程度上正是经济运行内在机制的变化在货币方面的反映。     

Money growth rules and price level determinacy

Do exogenous money growth rules produce price level determinacy? This is a classic topic in monetary theory. This paper contributes to this literature by examining the effect of money demand timing. The paper demonstrates how conditions for determinacy vary depending upon whether the theoretical model uses “cash-in-advance” timing or “cash-when-I'm-done” timing. This issue is addressed in an endowment economy and a standard production economy.     

Why is money important in Jean-Baptiste Say's analysis?

Jean-Baptiste Say dedicated a significant part of his work to monetary questions, as much to explain the monetary practices of his period and to propose concrete measures to improve certain elements, as to develop theoretical reflections on the role of money in the mechanisms that political economy sheds light upon. His thought for that matter is not always devoid of contradictions when it comes to reconciling the results of observation with certain dimensions of his analysis. The article explains his conception of money. A variation in its quantity has an impact not only on prices, but also on the real economy, favourable when this issue is slow and moderate, but negative, on the other hand, when it is fast and large-scale. This leads to the measures of monetary policy recommended by Say.     

The Holy Grail of Crypto Currencies: Ready to Replace Fiat Money?

Abstract:

This article suggests that current forms of crypto currencies will fail to complement or replace fiat money. We show that fixed-supply coins like bitcoin suffer from an inherently speculative and deflationary design and are not backed by a “We Owe You”. Stablecoins, i.e. coins that rely on flexible supply designs, are also not backed by a “We Owe You” and cannot achieve price stability because they build on outdated monetarist theories. Moreover, the algorithmically planned allocation of new coins, which is characteristic of stablecoins, is not market-based. As such, it is inferior to contemporary ways of money creation. Regarding price stability, we suggest that (crypto) monetary policy needs to overcome the illusionary dichotomy between the real and the financial circuit by accounting for systematic coordinated wage bargaining mechanisms to reflect that firms set prices according to cost-based pricing rules.     

动量货币与传统货币指标的理论与经验分析

简单加总的货币指标早已受到理论和实践的挑战,而主流国家的各种改革方案均没有取得成功.其原因是西方学者偏重货币的资产功能,忽视到货币的交易功能,对货币的基本认识存在偏差.宇宙中不存在绝对静止的事物,货币的本性是运动.物理学的动量定理与经济学的交易方程式可以进行类比.笔者尝试建立了动量货币的指标,初步的经验分析结果富有启发意义.货币的重要性依赖于它的数量和速度.西方学者排斥货币的真实速度,宏观经济学的基本结构存在重大缺陷.     

电子货币的替代效应与交易性货币供给:基于中国数据的实证分析

电子货币的产生与发展已经给传统的货币金融理论带来了前所未有的挑战.以电子货币为视角,通过对电子货币与交易性货币供给的相关性进行统计检验,结果表明: (1)电子货币对交易性货币有着明显的替代效应,它不仅改变了货币供给结构,而且给传统货币层次划分方法带来了新的挑战; (2)电子货币对传统货币的替代有着明显的阶段性特征; (3)电子货币的存在削弱了中央银行对基础货币的控制能力,弱化了货币供应量作为货币政策中介目标的效果,从而影响了货币政策的有效性.     

Should Banks Be Banned From Creating Money? An Analysis From the Perspective of Hierarchical Money

We extend the concept of “hierarchy of money” to our current monetary and financial system based on fiat money, with monetary policy that is conducted through the sale and purchase of securities and credit intermediation by non-bank financial intermediaries. This exposes a feedback loop between the upper and lower level of the hierarchy, which allows for more than full use of otherwise dormant capital, but that also increases inherent instabilities manifested in asset booms and busts. From the perspective of hierarchical money, we find that the call to ban banks from creating money neglects the significant role of securities-based financing in the global financial markets at the lower level, as well as the money creation capacity of central banks at the highest level of the hierarchy. Moreover, the inherently expansive nature of the hierarchy of money contradicts the long-term feasibility of full-reserve banking.     

The Covered Interest Parity Puzzle and the Evolution of the Japan Premium

A disturbance or breakdown of the first stage of the monetary transmission mechanism tends to be synonymous with high and volatile money market risk premia. Such market indicators include violations of the covered interest parity (CIP). This was not only evident during the financial crisis of 2007–08, but already during the Japanese banking crisis in the late 1990s, when it became referred to as the “Japan Premium.” Despite extraordinary policy measures by central banks in recent years, however, deviations from the CIP indicate continuing or even elevated stress in the international monetary system. This paper examines a string of distinct, but closely interconnected, assumptions and perceptions regarding CIP arbitrage. By doing so, it not only sheds some fresh light on the recent “CIP puzzle” but also on the era of the Japan Premium during the 1990s and its aftermath.     

How justified is abandoning money in the conduct of monetary policy in Australia on the grounds of instability in the money‐demand function?

The role of money in the design and conduct of monetary policy has reemerged as an important issue in both advanced and developing economies, especially since the 2007 global financial crisis. A growing body of recent literature suggests that the causal relationship between money supply growth and inflation remains intact across countries and over time and that this relation is not conditional on the stability of the money‐demand function or whether money is endogenous or exogenous. Moreover, critical for a rule‐based monetary policy is the presence of a long‐run stable money‐demand function, rather than a short‐run money‐demand model that may exhibit instability for many reasons, including problems with estimating a money‐demand model with high‐frequency data. Provided that a stable money‐demand function exists, it could be useful to establish long‐run equilibrium relations among money, output, prices, and exchange rates, as the classical monetary theory suggests. Within this analytical framework, this paper addresses the question of whether money has any role in the conduct of monetary policy in Australia. The conventional wisdom is that the money‐demand function in Australia has been unstable since the mid‐1980s due to financial deregulation and reforms; this led to a change in the strategy of monetary policy for price stability in the form of inflation targeting that ignores money insofar as inflation and its control are concerned. This paper reports empirical findings for Australia, obtained from a longer quarterly data series over the period 1960Q1–2015Q1, which suggest that instability in the narrow‐money‐demand function in Australia was primarily due to the exclusion of variables which have become important in the deregulated environment since the 1980s. These findings are confirmed by an expanded form of the narrow‐money‐demand function that was found stable over the past two decades, although it experienced multiple structural breaks over the study period. The paper draws the conclusion that abandoning the monetary aggregate as an instrument of monetary policy in Australia, under a rule‐based monetary policy such as inflation targeting, cannot be justified by instability in the money‐demand function or even by lack of a causal link between money supply growth and inflation.     

The Monetary Analysis of Hyperinflation and the Appropriate Specification of the Demand for Money

Abstract. This paper emerges from the failure of the traditional models of hyperinflation with perfect foresight. Insights from two standard optimizing monetary settings and economic reasoning from case studies of extreme hyperinflation episodes provide relevant requirements for the specification of the demand for money during hyperinflation. The paper demonstrates that the possibility of perfect foresight monetary hyperinflation paths depends robustly on the essentiality of money. The essentiality of money provides some depth of explanation of the reasons why the popular semi‐log schedule of the demand for money is not appropriate for analysing monetary hyperinflation with perfect foresight. The paper proposes a simple test of money essentiality for the appropriate specification of the demand‐for‐money equation in empirical studies of hyperinflation.     

An Empirical Assessment of the Swedish Bullionist Controversy*

In the 18th century, a fierce political debate broke out in Sweden about the causes of an extraordinary depreciation of the currency. More specifically, the deteriorating value of the Swedish currency was blamed arbitrarily on monetary causes (e.g., the overissuing of banknotes) and on non-monetary causes (such as balance-of-payments deficits). This paper provides a comprehensive empirical assessment of this so-called “Swedish Bullionist Controversy”. The results of vector autoregressions suggest that increasing amounts of paper money did give rise to inflation and a depreciation of the exchange rate. Conversely, non-monetary factors were probably less important for these developments.     

Insights on endogenous money and the liquidity preference theory of interest

It is argued that the debate between “structuralist” and “horizontalist” has long been obscured because of inadequate treatment, in both approaches, of the credit-money supply and of the total money supply. As a result, endogenous money models still have serious limitations today. On the one hand, the bank loan markup and the loan interest rate are exogenous in the horizontalist model, which supposes that they do not depend on the money/liquidity market conditions (as if bank loans did not compete with the existing liquidity). On the other hand, although interest rates are endogenous in the structuralist model, they result from inappropriate treatment of the loan supply and money/liquidity supply. This article aims to remove these shortcomings. It offers a theoretical framework and formal modeling where the creditworthy demand for loans determines the bank loan supply, given the central bank refinancing interest rate, while the total supply and demand for liquidity-money determines the markup and the market rate of interest in accordance with Keynes’s liquidity preference theory. In this framework, the post Keynesian theory of endogenous money and Keynes’s “verticalist” view prove to be analytically complementary.     

Money Creation in the Eurozone: An Empirical Assessment of the Endogenous and the Exogenous Money Theories

ABSTRACT

The aim of this paper is to strengthen our understanding of the money creation process in the Eurozone for 1999–2016 period, through an empirical assessment of two main monetary theories, namely the (Post Keynesian) endogenous money theory and the (Monetarist) exogenous money theory. By applying a VAR and VECM methodology, we analyse the causal relationship among monetary reserves (or monetary base), bank deposits and bank loans. Our empirical analysis supports several propositions of the Post Keynesian endogenous money theory since (i) bank loans determine bank deposits, and (ii) bank deposits in turn determine monetary reserves.     

The nature and role of monetary policy when money is endogenous

This paper considers the nature and role of monetary policywhen money is modelled as credit money endogenously createdwithin the private sector. There are currently two schools ofthought that view money as endogenous: one has been labelledthe ‘new consensus’ in macroeconomics, and the otheris the Keynesian endogenous (bank) money approach. The paperfirst explores the analysis of monetary policy in the ‘newconsensus’ macroeconomic model, followed by an examinationof the effectiveness of monetary policy in that analysis. TheKeynesian view of endogenous money is discussed, and the rolefor monetary policy in a Keynesian endogenous monetary policyanalysis is considered, including discussion of the objectivesand instruments of monetary policy.     

Substitution Between Money and Near-Monies in Switzerland

This paper investigates the substitutability between money and near-money assets during the period 1976 to 1996 in Switzerland. Financial developments have made a variety of instruments available to store wealth and conduct economic transactions. These developments have generated a “near money” component in households’ and businesses’ portfolio balances. It is important to evaluate the effect of “near-money” on money demand and the effectiveness of monetary policy. Towards this goal, five monetary assets: currency and demand deposits at commercial banks, demand deposits with the postal system, deposits on transaction accounts with banks, savings deposits and time deposits are considered. We evaluate the degree of substitutability among these assets using the Morishima elasticity. Results show that various monetary assets substitute for one another. Consistent with a high degree of diversification, the Morishima elasticity is significantly larger when adjustment takes place in the price of a relatively broader monetary asset as compared with a narrower one. Targeting a broad monetary aggregate captures a variety of assets that contribute to liquidity and aggregate demand, enhancing the effectiveness of monetary policy. Nonetheless, high elasticity of substitution between monetary assets has made it increasingly difficult to target money demand via changes in the interest rate. As a result, in 1999 the Swiss National Bank abandoned monetary targeting in favor of an expected inflation target.

     

Current global imbalances and the Keynes Plan: A Keynesian approach for reforming the international monetary system

This paper proposes a “logical experiment”, illustrating how alternative international monetary systems may produce opposite results in the global economy. In the current organisation, “key currencies” work as international money. Keynes, by contrast, proposed that this role should be assigned to a supranational, “credit” money. While the world currently lives in an asymmetric regime, which lead to what has been defined as a “balance of financial terror”, Keynes tried to achieve a more peaceful type of “international balance”. I argue that the structural reform and the technical provisions proposed by the “Keynes Plan” may still – at least in principle – provide useful remedies for international disequilibria, by remedying the asymmetries of the current international payments architecture and helping to curb both inflationary and deflationary pressures on the world economy.     

Supra-National Money and the Euro Crisis: Lessons from Karl Polanyi

The paper seeks to examine some of the key features of Karl Polanyi’s ideas explaining the collapse of the pre-Great Depression unregulated market system by using his broad framework of analysis, as developed in The Great Transformation and published over 70 years ago, to explain the present Eurozone crisis. Emphasis is placed on the two key institutions of the pre-Depression era, namely haute finance and the gold standard, as well as his heterodox views on the nature and origin of money to shed light on the evolving crisis within the Eurozone. On the basis of Polanyi’s insights, the paper concludes that the cause of the latter crisis is similar and it lies primarily in the adoption of stateless or supra-national money that is even more restrictive on the behaviour of national authorities than the conditions imposed under the gold standard. The current situation of quasi-permanent austerity in the Eurozone is the inevitable consequence of its monetary architecture, and it will remain a long-term feature of Europe, unless significant institutional changes are put in place to bridge the gap between money and the state.     

不稳定的货币流通速度必然导致货币量中介目标无效吗?

大量的文献研究表明,货币流通速度的稳定性是货币量作为货币政策中介目标的先决条件。近年来随着金融创新的发展,各个国家的货币流通速度都出现了较大的波动,因此,无论是理论界还是货币政策当局对货币量作为货币政策中介目标可能性的否定,在一定程度上都依据了货币流通速度的不稳定性。然而,基于伯杜和乔纳格的研究,本文研究表明:货币流通速度的不稳定并不必然意味着货币量作为货币政策中介目标是无效的,影响货币量作为货币政策中介目标的最主要因素是流通速度的可预测性以及货币当局对货币流通速度的预测能力;只要货币当局能够准确预测货币流通速度变化的方向和幅度,货币供给量就仍然可以作为货币政策的中介目标。本文的结论是,近期中国广义货币M 2的可预测性较好,因此,基于货币流通速度的不稳定性而否定货币量作为中介目标的可能性是不正确的。