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A New Financial System for Poverty Reduction and Growth

  • Biaggio Bossone
  • Abdourahmane Sarr
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    Our proposal draws on the premise that the availability of stable demand deposits for bank lending, in the process of which inside money is created, does not require any act of intentional saving. The mechanism allowing banks to lend deposits does not function well in low-income countries, owing to a number of structural constraints. We argue that separating inside money creation from lending, and distributing it on a nonlending basis to depositors through specialized payment service institutions, could broaden access to financial resources, fuel non-inflationary, demand-led growth; and foster financial deepening, diversification, and stability. We also argue that the proposed reform is consistent with market incentives and sound economic management.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/178.

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    Length: 43
    Date of creation: 01 Oct 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/178
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    1. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. Abdourahmane Sarr, 2000. "Financial Liberalization, Bank Market Structure, and Financial Deepening: An Interest Margin Analysis," IMF Working Papers 00/38, International Monetary Fund.
    3. James McAndrews & William Roberds, 1999. "Payment intermediation and the origins of banking," Staff Reports 85, Federal Reserve Bank of New York.
    4. Saint-Paul, G., 1990. "Technological Choice, Financial Markets and Economic Development," DELTA Working Papers 90-30, DELTA (Ecole normale supérieure).
    5. Paul Cashin & Catherine A. Pattillo & Ratna Sahay & Paolo Mauro, 2001. "Macroeconomic Policies and Poverty Reduction: Stylized Facts and An Overview of Research," IMF Working Papers 01/135, International Monetary Fund.
    6. Freeman, Scott, 1996. "Clearinghouse banks and banknote over-issue," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 101-115, August.
    7. Bossone, Biagio, 2001. "Circuit theory of banking and finance," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 857-890, May.
    8. Vassili Prokopenko & Paul Holden, 2001. "Financial Development and Poverty Alleviation: Issues and Policy Implications for Developing and Transition Countries," IMF Working Papers 01/160, International Monetary Fund.
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