The foundations of money, payments and central banking: A review essay
AbstractThe purpose of this paper is to understand the economics behind the evolution of payments where by payments I mean the â€˜transfer of monetary valueâ€™ (in return for goods, services, or real or financial assets). It is clear from this definition of payments that, in order for there to be payments, there first needs to be money. So, the paper first discusses why money might evolve as a result of some frictions inherent in real-world economies. It then discusses the evolution of banks, arguing that banks developed in order to provide payment services (making â€˜moneyâ€™ work more efficiently). The paper then discusses how banks can save on the use of collateral to make payments â€“ collateral that they can convert into loans to earn a return â€“ by the development of â€˜payment systemsâ€™. Such systems will involve some form of netting of payments (clearing) and final settlement in some asset. â€˜Central banksâ€™ fit into this picture by providing, in their liabilities, a settlement asset that the other banks are happy to use. In so doing, they are incentivised to worry about monetary and financial stability
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Bibliographic InfoPaper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 106.
Date of creation: 02 Feb 2007
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Money; banks; payment systems; central banks;
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-09 (All new papers)
- NEP-CBA-2007-04-09 (Central Banking)
- NEP-HIS-2007-04-09 (Business, Economic & Financial History)
- NEP-HPE-2007-04-09 (History & Philosophy of Economics)
- NEP-MAC-2007-04-09 (Macroeconomics)
- NEP-MON-2007-04-09 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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