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Money and debt in the structure of payments

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  • Edward J. Green

Abstract

In Scott Freeman?s (1996) model, payment system arrangements based on intermediated debt that is settled with money achieve higher welfare than does direct money payment. In a simplified version of Freeman?s model, welfare can be further improved and efficiency achieved by a monetary authority participating in a secondary market for debt or by a private intermediary using a common clearinghouse device. The analysis clarifies that ordinary private agents can assume the role of central bank or clearinghouse; no artificial agent, posited solely to play that role and endowed with special capabilities for it, is necessary. The institutional features required for a central bank or a clearinghouse to achieve efficiency, particularly features related to central bank independence, are discussed informally.

Suggested Citation

  • Edward J. Green, 1999. "Money and debt in the structure of payments," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 23(Spr), pages 13-29.
  • Handle: RePEc:fip:fedmqr:y:1999:i:spr:p:13-29:n:v.23no.2
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    References listed on IDEAS

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    1. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-1138, December.
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    More about this item

    Keywords

    Payment systems;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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