IDEAS home Printed from https://ideas.repec.org/p/lev/wrkpap/wp_457.html
   My bibliography  Save this paper

Why Central Banks (and Money) Rule the Roost

Author

Listed:
  • C. Sardoni

Abstract

Some have argued that a significant decrease in the demand for money, due to financial innovations, could imply that central banks are unable to implement effective monetary policies. This paper argues that central banks are always able to influence the economy's interest rates, because their liability is the economy's unit of account. In this sense, central banks "rule the roost." In the 1930s, starting from Keynes's ideas and referring to money in general, Kaldor had followed a similar line of analysis. In principle, a new unit of account could displace conventional money and, hence, central banks. But this process meets relevant obstacles, which essentially derive from the externalities and network effects that characterize money. Money is a "social relation." Money and central banks are the outcome of complex social and economic processes. Their displacement will occur through equally complex processes, rather than through mere innovation.

Suggested Citation

  • C. Sardoni, 2006. "Why Central Banks (and Money) Rule the Roost," Economics Working Paper Archive wp_457, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_457
    as

    Download full text from publisher

    File URL: http://www.levyinstitute.org/pubs/wp_457.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Freedman, Charles, 2000. "Monetary Policy Implementation: Past, Present and Future--Will Electronic Money Lead to the Eventual Demise of Central Banking?," International Finance, Wiley Blackwell, vol. 3(2), pages 211-227, July.
    2. David Laidler, 2004. "Central Banks as Lenders of Last Resort - Trendy or Passe?," University of Western Ontario, Economic Policy Research Institute Working Papers 20048, University of Western Ontario, Economic Policy Research Institute.
    3. Benjamin M. Friedman, 2000. "Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking," NBER Working Papers 7955, National Bureau of Economic Research, Inc.
    4. Hicks, John, 2017. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198796237.
    5. Woodford, Michael, 2000. "Monetary Policy in a World without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-260, July.
    6. Holthausen, Cornelia & Monnet, Cyril, 2003. "Money and payments: a modern perspective," Working Paper Series 245, European Central Bank.
    7. L. Randall Wray, 1998. "Understanding Modern Money," Books, Edward Elgar Publishing, number 1668.
    8. Dow, Sheila C & Smithin, John, 1999. "The Structure of Financial Markets and the 'First Principles' of Monetary Economics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(1), pages 72-90, February.
    9. Dowd, Kevin & Greenaway, David, 1993. "Currency Competition, Network Externalities and Switching Costs: Towards an Alternative View of Optimum Currency Areas," Economic Journal, Royal Economic Society, vol. 103(420), pages 1180-1189, September.
    10. Ingham, Geoffrey, 2004. "The nature of money," economic sociology_the european electronic newsletter, Max Planck Institute for the Study of Societies, vol. 5(2), pages 18-28.
    11. Goodhart, Charles A. E., 1998. "The two concepts of money: implications for the analysis of optimal currency areas," European Journal of Political Economy, Elsevier, vol. 14(3), pages 407-432, August.
    12. Michael Woodford, 2001. "Monetary policy in the information economy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 297-370.
    13. Bruce White, 2001. "Central banking: back to the future," Reserve Bank of New Zealand Discussion Paper Series DP2001/05, Reserve Bank of New Zealand.
    14. Goodhart, Charles A E, 2000. "Can Central Banking Survive the IT Revolution?," International Finance, Wiley Blackwell, vol. 3(2), pages 189-209, July.
    15. Charles Goodhart, 2000. "Can Central Banking Survive the IT Revolution?," FMG Special Papers sp125, Financial Markets Group.
    16. Hicks, J. R., 1975. "Value and Capital: An Inquiry into some Fundamental Principles of Economic Theory," OUP Catalogue, Oxford University Press, edition 2, number 9780198282693.
    17. Friedman, Benjamin M, 2000. "Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking," International Finance, Wiley Blackwell, vol. 3(2), pages 261-272, July.
    18. Benjamin M. Friedman, 1999. "The Future of Monetary Policy: The Central Bank as an Army With Only a Signal Corps," NBER Working Papers 7420, National Bureau of Economic Research, Inc.
    19. Michael Woodford, 2002. "Financial market efficiency and the effectiveness of monetary policy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 85-94.
    20. Friedman, Benjamin M, 1999. "The Future of Monetary Policy: The Central Bank as an Army with Only a Signal Corps?," International Finance, Wiley Blackwell, vol. 2(3), pages 321-338, November.
    21. Bruce White, 2001. "Central Banking: back to the future," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 64, september.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Benigno, Pierpaolo, 2017. "A Central Bank Theory of Price Level Determination," CEPR Discussion Papers 11966, C.E.P.R. Discussion Papers.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_457. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Dunn). General contact details of provider: http://www.levyinstitute.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.