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Exchange liquidity and redemption liquidity

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  • James Culham

Abstract

Disagreements over the nature of money and consequent confusions regarding liquidity contribute to difficulties integrating monetary theory into the theory of value. For example, an abundance of market liquidity is assumed in asset pricing, whereas a scarcity of monetary liquidity is deemed necessary for consumer price-level determinacy. This paper builds on the insights gained from the evolution of finance to introduce a distinction between exchange liquidity and redemption liquidity as a means of resolving this conceptual dissonance. Both exchange and redemption liquidity can be conceptualised as types of financial option differing in the exercise mechanism offered to the option holder by the option-writer.

Suggested Citation

  • James Culham, 2023. "Exchange liquidity and redemption liquidity," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 47(3), pages 667-679.
    • Handle: RePEc:oup:cambje:v:47:y:2023:i:3:p:667-679.
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    File URL: http://hdl.handle.net/10.1093/cje/bead012
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