On the Spontaneous Freezing of the Monetary Base
AbstractThe paper explores the question of whether markets under laissez-faire will be able to insulate an economy from bad government money. Some recent proposals favour freezing the monetary base, by abandoning central bank operations. This requires active participation by the monetary authorities, however. On the other hand, the network externality makes a switch from central-bank currency difficult. The paper investigates how the dilemma could be overcome and the monetary base be spontaneously frozen, by a process where commercial banks issue liabilities that are redeemable only into central bank notes issued before a certain date.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 48.
Length: 28 pages
Date of creation: Mar 1995
Date of revision:
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Free banking; monetary evolution; currency competition;
Find related papers by JEL classification:
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- G2 - Financial Economics - - Financial Institutions and Services
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