An experiment with multiple currencies: the American monetary system from 1838–60

This paper finds that the combination of state regulated bank notes and deposits acting as the principal form of money and heterogeneous bank laws in the antebellum United States led to a loosely fixed exchange rate system where states were capable of exercising limited independent monetary policy. It finds that bank note circulation and deposits moved differently across the states, and based on narrative evidence, it seems states were aware of their ability to affect the money supply of their economies and that some states did in fact try to change their banking systems to do so.     

Dual-track interest rates and the conduct of monetary policy in China

China has a dual-track interest-rate system: bank deposit and lending rates are regulated while money and bond rates are market-determined. The central bank also imposes an indicative target, which may not be binding at all times, for total credit in the banking system. We develop and calibrate a theoretical model to illustrate the conduct of monetary policy within the framework of dual-track interest rates and a juxtaposition of price- and quantity-based policy instruments. We show the transmission of monetary policy instruments to market interest rates, which, together with the indicative credit target in the banking system, ultimately are the means by which monetary policy affects the real economy. The model shows that market interest rates are most sensitive to changes in the benchmark deposit interest rates, significantly responsive to changes in the reserve requirements, but not particularly reactive to open market operations. These theoretical results are verified and supported by both linear and GARCH models using daily money and bond market data. Overall, the findings of this study help us to understand why the central bank conducts monetary policy in China the way it does, using a combination of price and quantitative instruments with differing degrees of potency in terms of their influence on the cost of credit.     

Mises on Monetary Reform: the Private Alternative

This paper discusses Ludwig von Mises's proposals for monetary reform. We will largely focus on technical aspects—the concrete practical steps he recommended—without detailing how these relate to his general conceptions of money and of a sound monetary order. We will highlight two characteristic features of Mises's proposals. One, he stressed the role of the competitive market process and of private initiative in establishing a monetary order based on gold, effective gold coin circulation, and 100% reserve banking. Two, he presented an original scheme for privatizing the control of the money supply.     

The case against currency boards

Conclusion We have argued that a CB is a creation of the state, aiming at granting particular political favors, and purposefully designed to secure the reappearance of an independent domestic money producer. A CB establishes a foreign fiat money standard enforced by legal tender laws for its bank notes, which are mere money substitutes in the context of fractional-reserve commercial banking. This insight helps us to understand why CBs have always degenerated into national central banks of the modern type: they were intentionally created to do so. This surely will also be the fate of present-day CBs. Although technically the transition from a CB to a commodity money (gold or other commodity standard) is facilitated by the warehouse aspect of the currency board, this institution does not present any incentive for the policy-makers to subject the production of money to the regulation of the free market. The paper was presented at the Southern Economic Association meeting, New Orleans, 2002.     

Central bank losses: causes and consequences

This paper seeks to understand the causes and consequences of central banks' losses. Ignorance of this vital issue over a sustained period has led to negative impacts on economies and on central banking and monetary policy effectiveness. Data from developing countries and economies in transition show that central bank losses have reached significant magnitudes. Engaging in quasi‐fiscal activities is responsible for most such losses because it increases central banks' expenditures. The main features of these fiscal activities are their large size and riskiness, and they are difficult to control. Central bank revenues can also be negatively affected because of declines in inflation rates and in the demand for money.     

Hot Money Flows,Commodity Price Cycles and Financial Repression in the USA and China： The Consequences of Near-zero US Interest Rates

Under near-zero US interest rates, the international dollar standard malfunctions. Emerging markets with naturally higher interest rates are swamped with hot money inflows. Emerging market central banks intervene to prevent their currencies from rising precipitately. They lose monetary control and domestic prices begin inflating. Primary commodity prices rise worldwide unless interrupted by an international banking crisis＇. This cyclical inflation on the dollar＇s periphery only registers in the US core eonsumer price index with a long lag. The zero interest rate policy also fails to stimulate the US economy as domestic finaneial intermediation by banks and money market mutual funds is repressed. Because China is forced to keep its interest rates below market-clearing levels, it also suffers from finaneial repression, although in a form differing from that in the USA.     

A Descriptive Model of Banking and Aggregate Demand

We integrate a banking sector into an accessible macroeconomic framework, which then provides new insights on developments around the Global Financial Crisis. The analysis shows that growth of banking sector money supply may help explain the secular decline in long-term interest rates before the crisis. A new bank funding channel of monetary transmission clarifies why increases in central bank policy rates could not reverse this trend. Our analysis highlights the distinction between the zero lower bound and the liquidity trap, and shows that bank recapitalizations can be more effective than fiscal expansions in restoring aggregate demand after a banking crisis.     

试论金融全球化条件下的网络金融发展对货币政策的影响

电子货币的产生是完全适应客户需求而产生的,因特网的国际化特性使这种完全以需求导向的电子货币更易打破境域的限制,在全球范围内加剧了不同国家货币供给机制间的竞争,对各国的宏观调控产生不利的影响。本文试从金融全球化和网络化条件下一国货币供求的变化分析入手,来讨论其变动对一国货币政策的冲击及其影响。     

An Analysis of the Structure of Interest Rates in Taiwan: An Application of the Vector ARIMA Model

The structure of interest rates in Taiwan is analysed through the vector ARIMA approach using monthly and quarterly data from 1978 to 1989. These rates are the regulated bank interest rate and unregulated money market interest rates in the formal financial market and the kerb rate in the informal market. The results show that the adjustments in the bank interest rate follow that of the money market interest rate. Furthermore, the time lag has been shortened from one quarter in the early stages of interest rate liberalization in Taiwan to only one month in the later stages. Increases in the money market interest rate might be followed by an increase in the kerb market interest rate because of partial market segmentation. In periods when there is excess supply of funds in the banking sector, an increase in the bank rate might be followed by a decrease of the kerb rate. The interest rates structure of Taiwan is relevant to developing countries which have an informal financial sector.     

Monetary theory and monetary policy a central banker's view

Summary In this article attention is paid to monetary theory, the relationship between the instruments of monetary policy and other important macro-economic policy instruments, and finally to the real possibilities of pursuing an effective monetary policy. The conclusion from the theoretical analysis is that the total money supply must be considered one of the most important macro-economic policy instruments. An excessive supply of money will sooner or later lead to inflation, to the debasement of money. Therefore the volume of money should be controlled. The use and effectiveness of monetary policy should always be seen in the context of other policy instruments, especially fiscal policy and, under circumstances, wage- and price policy. The possibilities to pursue an effective monetary policy are not unlimited. The effectiveness of such a policy can,e.g., be hampered by external factors. It is vital for a central bank to have the widest possible range of instruments at its disposal.     

Internal versus external convertibility and emerging-market crises: lessons from Argentine history

Argentina’s money and banking system was hit hard by the Great Depression. Banks were awash with bad assets when gold convertibility was suspended in December 1929. We argue for an explanation of the crisis that focuses on the inside-outside money relationship in a system of fractional-reserve banking and gold-standard rules with a tension between internal and external convertibility. After financial fragility appeared in the 1914-1927 suspension, resumption in 1928 was probably unsustainable due to the problems of the financial system and a dynamic model illustrates the point well. When the state bank became insolvent, the currency board started bailing out the system using high-powered money. Thus, came about the demise of the currency board and the creation of a central bank in 1935. As one of its first substantive actions, the central bank engineered a bailout of the banking system at a massive social cost. The parallels with recent developing-country crises are remarkable and the implications for the institutional design of monetary and banking systems are considered.     

Monetization and the behavior of velocity in Sweden, 1871–1913

The income velocity of money declined sharply in Sweden between the 1870's and the outbreak of World War I. This decline is explained by a monetization process. An account of this process is given focusing on (a) the growth of commercial banking, (b) changes in wage contracts and in labor markets, and (c) changes in exchange arrangements in the markets for goods. A number of proxy measures of the spreading use of money are presented and included in regressions on velocity. The influence of the monetization variables is compared to the effects of the standard explanatory variables in money demand studies, that is, of real income and interest rates. The econometric results support the view that monetization variables significantly contributed to the fall in velocity. These results question the luxury-good hypothesis of money, suggesting that the standard approach of including real income as an explanatory variable in money demand studies covering long spans of time runs the risk of ignoring important determinants of the secular behavior of velocity.     

银行危机持续时间的影响因素研究

文章以l980—2012年间的85次银行危机为样本,以经济增长恢复到危机前水平的所需时间为银行危机持续期的度量标准,综合考虑危机前经济体的经常账户、政府债务、资产价格变化情况以及危机中的财政政策、货币政策实施情况,采用简单线性回归模型对银行危机持续时间的影响因素进行了分析。研究发现,危机前的股票价格指数增长越快,银行危机的持续期越长,危机中货币供应的增长会使银行危机的持续期加长,危机中扩张性的财政政策以及危机中较快的全球经济增长则能在一定程度上缩短银行危机的持续期。     

Macroeconomic stability in a free banking system

This paper uses a simple general equilibrium banking model to examine how permitting banks to issue notes might affect macroeconomic stability. Adding banknotes to the menu of available liabilities alters the interest sensitivities of bank security and deposit choices. This changes the slope of the economy's LM schedule and the magnitude of its displacement in the face of financial market disturbances. However, the theoretical directions of these changes that free banking would induce are ambiguous. While empirical evidence permits some speculation that free banking actually could reduce stability in the face of expenditure (IS) shocks, the key point of this paper is that any theoretical case favoring free banking cannot rest on an argument that free banking unambiguously would stabilize equilibrium nominal income.     

The money supply mechanism and monetary policy in China

One of the main difficulties of analyzing the macroeconomic condition in The People's Republic of China is the lack of information of its money supply mechanism. The present paper tries to provide a systematical analysis of the Chinese money supply process from both the theoretical and empirical points of view. It shows that the economic reform in the 1980s caused profound changes in the structure of the banking system in the following ways, (a) The establishment of the central bank paved the foundation of the money creation process through the monetary base and a multiplier effect, (b) Consequently, the money supply and credit condition are controlled, at least partially, by economic instruments such as the monetary base, required reserve ratio, and interest rates, (c) The old money supply system is far from being phased out yet. As a matter of fact, it is the mixture of a central bank system and an administrative command driven centrally planned system that constitutes the money supply mechanism with the “Chinese characteristics”. The successes and failures of the monetary policies in the late 1980s and early 1990s reflect the central bank's ability to control the macroeconomic condition of the economy. They also indicate that at the beginning of the 1990s, after a decade of economic reforms, the money supply mechanism in China is still, by and large, controlled by the central government through administrative orders rather than economic leverages.     

The emergence of a private clientele for banks in the early eighteenth century: Hoare's Bank and some women customers1

The records of Hoare's Bank and the correspondence of six of its women customers show how these women started to use the new banking services both for transferring money and for trading in the stock market. It is clear that alongside their use of the new facilities, older systems of money transfer remained important for customers. Much of the business of the bank and its customers, including their ventures into the stock market, took place within groups of people united by kinship, religion, and politics.     

货币市场基金影响货币流通速度吗

货币流通速度不仅受实体经济影响,而且受虚拟经济影响,本文运用实证分析方法探讨货币市场基金对货币流通速度是否产生影响,结果表明货币市场基金收益率变动是货币流通速度变动的格兰杰原因,两者正相关,可根据货币市场基金收益率和一年期国债收益率预测货币流通速度,货币政策实施效果受货币流通速度影响,管理者可通过调整货币市场基金政策稳定货币流通速度。     

Keynes' monetary theory and bank reserves in Britain

Conclusions The key institutional peculiarity of Britain that caused the economics of Keynes is that bank reserves on all types of deposits were traditionally the same. This meant that decisions of savers and speculators to increase holdings of Savings-deposits (which are the alternative to securities) did not increase bank lending ability. The key mechanism of flexible interest rates was disabled, and arbitrage between different types of investments caused the fixing of the bank rate and the deposit rate to be transmitted to all short-term rates, and with inelastic expectations, to long rates. Higher interest rates increase the quantity of the medium of exchange in circulation. The quantity of the medium of exchange is endogenous in Keynes' system. Such interest-rate raising events as decreased savings, an increase in the marginal efficiency of capital, and deficit financing all increase the quantity of the medium of exchange in circulation. The monetarist distinction between deficit financing by money creation and debt is not meaningful in Britain where all deficit financing expands the money supply.     

Do Credit Cards Really Reduce Aggregate Money Holdings?

This paper discusses whether the use of credit cards reduces aggregate money holdings in an economy. Applying and modifying the Baumol-Tobin model (Baumol Quarterly Journal of Economics 66:545–556, 1952 and Tobin Review of Economics and Statistics 38(3):241–247, 1956), it studies how much money a credit card bank would normally maintain to support retail trade, and shows that whether or not the use of credit cards actually reduces the aggregate demand for money depends on how often consumers visit the bank and how long it takes to clear a check. With innovations in the banking industry such as ATMs, online banking, and other electric funds transfer services, the cost of visiting banks (i.e., switching funds between a checkable account and an interest-earning account) is now very low. For the whole economy, as a result, the use of credit cards may not necessarily reduce aggregate money holdings.     

Regime shift and fast recovery on the periphery: New Zealand in the 1930s

New Zealand's recovery from the Great Depression was unusually fast and promoted by a new monetary regime that disassociated the Dominion's banking system from that of Australia, and broke the conventional parity between the New Zealand pound and sterling. The new regime destroyed deflationary sentiments, redistributed income to farmers, and sharply reduced real interest rates. Collectively, these forces promoted recovery. The consequences for New Zealand's real GDP are gauged by assessing how money, velocity, and prices would have behaved without a regime change. The new monetary regime raised real GDP per caput by one–third by 1938.