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Bank deregulation, accounting systems of exchange, and the unit of account: A critical review


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  • McCallum, Bennett T.


This paper reviews a specific group of recent publications by Black, Fama, Hall, and Greenfield and Yeager that (i) encourage the relaxation of government controls on the banking industry, (ii) emphasize the possibility of an economy in which most transactions are carried out through an accounting system rather than any tangible medium of exchange, and (iii)suggest that improved monetary performance could be induced by separating the unit of account from the medium of exchange.The main substantive conclusions are as follows. First, a system with an unregulated banking sector and a government-issued currency would be viable and might reduce inefficiencies resulting from reserve requirements, a point that has been recognized by neoclassical monetary economists.The second main class of systems discussed in the reviewed papers -- one with a composite-commodity medium of account and no convertibility provision -- is quite different. If there were literally no medium of exchange, the non-coercive government designation of the unit of account would encounter no inconsistency but would be extremely fragile. More realistically, with some circulating private currency the latter would tend to become the medium of account as well as the medium of exchange and would tend to be issued in excess, thereby separating the unit of account from the officially-designated bundle of commodities. Several conclusions regarding analytical approach are also developed.

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Article provided by Elsevier in its journal Carnegie-Rochester Conference Series on Public Policy.

Volume (Year): 23 (1985)
Issue (Month): 1 (January)
Pages: 13-45

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Handle: RePEc:eee:crcspp:v:23:y:1985:i::p:13-45

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Cited by:
  1. Colin Rogers & Thomas K. Rymes, 1998. "Indirect Convertibility and Quasi-Futures Contracts: Two Non-Operational Schemes for Automatic Stabilisation of the Price Level?," School of Economics Working Papers 1998-17, University of Adelaide, School of Economics.
  2. Bennett T. McCallum, 2000. "The Present and Future of Monetary Policy Rules," NBER Working Papers 7916, National Bureau of Economic Research, Inc.
  3. Bennett T. McCallum & Marvin S. Goodfriend, 1986. "Theoretical analysis of the demand for money," Working Paper 86-03, Federal Reserve Bank of Richmond.
  4. Kenneth A. Froot & Jeffrey A. Frankel, 1989. "Interpreting Tests of Forward Discount Bias Using Survey Data on Exchange Rate Expectations," NBER Working Papers 1963, National Bureau of Economic Research, Inc.
  5. J. Aschheim & G.S. Tavlas, 1994. "Nominal anchors for monetary policy: a doctrinal analysis," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 47(191), pages 469-494.
  6. Strobel, F., 1998. "International Tax Arbitrage Tax Evasion amd Interest Parity Conditions," Discussion Papers 98-05, Department of Economics, University of Birmingham.
  7. Colin Rogers, 2004. "Doing Without Money: A critical assessment of Woodford's analysis," Method and Hist of Econ Thought 0411001, EconWPA.
  8. Strobel, Frank, 2012. "International tax arbitrage, currency options and put-call parity conditions," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(3), pages 473-486.
  9. Cesarano, Filippo, 1995. "The New Monetary Economics and the theory of money," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 445-455, May.


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