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Monetary Policy Implementation: Past, Present and Future--Will Electronic Money Lead to the Eventual Demise of Central Banking?

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  • Freedman, Charles

Abstract

This paper examines the ways in which central banks influence the very short-term interest rate in regimes with and without reserve requirements. It then examines the implications for monetary policy implementation of the spread of electronic money and the potential for other mechanisms to compete with settlement arrangements at central banks. It concludes that it is extremely unlikely that electronic money will displace bank notes or the settlement services that are offered by central banks in the foreseeable future. Moreover, even in the extremely unlikely case that the spread of stored-value cards leads to the elimination of bank notes and that the development of network money permits alternative settlement services to be offered that effectively competes with central bank services, central banks would very likely be able to continue to influence the very short-term rate of interest. They would therefore be able to maintain their influence over aggregate demand and inflation even in such circumstances. Copyright 2000 by Blackwell Publishers Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 3 (2000)
Issue (Month): 2 (July)
Pages: 211-27

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Handle: RePEc:bla:intfin:v:3:y:2000:i:2:p:211-27

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Cited by:
  1. Buiter, Willem H., 2006. "The elusive welfare economics of price stability as a monetary policy objective: why New Keynesian central bankers should validate core inflation," Working Paper Series, European Central Bank 0609, European Central Bank.
  2. Michael Woodford, 2001. "Monetary Policy in the Information Economy," NBER Working Papers 8674, National Bureau of Economic Research, Inc.
  3. Thornton, Daniel L., 2014. "Monetary policy: Why money matters (and interest rates don’t)," Journal of Macroeconomics, Elsevier, Elsevier, vol. 40(C), pages 202-213.
  4. Gilbert Bougi & Helmi Hamdi, 2007. "La crédibilité de la banque centrale face aux défis de la monnaie électronique," CAE Working Papers, Aix-Marseille Université, CERGAM 56, Aix-Marseille Université, CERGAM.
  5. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.
  6. Buiter, Willem H, 2004. "The Elusive Welfare Economics of Price Stability As A Monetary Policy Objective: Should New Keynesian Central Bankers Persue Price Stability," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4730, C.E.P.R. Discussion Papers.
  7. Lamberte, Mario B., 2002. "Central Banking in the Philippines: Then, Now and the Future," Discussion Papers DP 2002-10, Philippine Institute for Development Studies.
  8. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," BNL Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.
  9. Cette, G. & Pfister, C., 2003. "The Challenges of the "New Economy" for Monetary Policy," Working papers, Banque de France 100, Banque de France.
  10. Michael Woodford, 2000. "Monetary Policy in a World Without Money," NBER Working Papers 7853, National Bureau of Economic Research, Inc.
  11. C. Sardoni, 2006. "Why Central Banks (and Money) Rule the Roost," Economics Working Paper Archive wp_457, Levy Economics Institute.
  12. Benjamin M. Friedman, 2000. "Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking," NBER Working Papers 7955, National Bureau of Economic Research, Inc.
  13. Kenneth N. Kuttner & James J. McAndrews, 2001. "Personal on-line payments," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Dec, pages 35-50.
  14. Bennett T. McCallum, 2004. "Monetary Policy In Economies With Little Or No Money," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 9(2), pages 81-92, 06.
  15. Li, Yan & Carroll, Wayne, 2011. "The payment mechanisms and liquidity effects," Journal of Macroeconomics, Elsevier, Elsevier, vol. 33(4), pages 656-667.
  16. Lamberte, Mario B., 2001. "The Philippine Payment System: Efficiency and Implications for the Conduct of Monetary Policy," Discussion Papers DP 2001-20, Philippine Institute for Development Studies.
  17. Charles Freedman & Clyde Goodlet, 2002. "The Financial Services Sector: An Update on Recent Developments," Technical Reports, Bank of Canada 91, Bank of Canada.

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