Money and Debt in the Structure of Payments
AbstractFreeman (1996) formulates a model in which arrangements based on intermediated debt that is settled using money achieve higher welfare that direct money payment achieves. A monetary authority can sometimes further improve welfare and achieve efficiency by participating in a secondary market for debt; and a private intermediary can also achieve efficiency by means reminiscent of clearinghouses. These results are derived here in a simplified version of Freeman's model. This analysis clarifies that ordinary private agents in the model are capable of assuming the role of central bank or clearinghouse. An artificial agent, posited solely to play such a role and endowed with special capabilities for it, is unnecessary. The features of institutional governance required for either a central bank or a clearinghouse to achieve efficiency, particularly features related to central bank independence, are discussed informally.
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Bibliographic InfoArticle provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.
Volume (Year): 15 (1997)
Issue (Month): 1 (May)
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Other versions of this item:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
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