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Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking

  • Benjamin M. Friedman
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    The threat to monetary policy from the electronic revolution in banking is the possibility of a decoupling' of the operations of the central bank from markets in which financial claims are created and transacted in ways that, at some operative margin, affect the decisions of households and firms on such matters as how much to spend (and on what), how much (and what) to produce, and what to pay or charge for ordinary goods and services. The object of this paper is to discuss how this possibility arises and what it implies, to dismiss as unessential to the argument various extreme characterizations that have arisen in the recent debate on this issue (for example, that no one will use money for ordinary economic transactions), and to address the specific arguments on the issue offered by Charles Goodhart, Charles Freedman and Michael Woodford.

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    File URL: http://www.nber.org/papers/w7955.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7955.

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    Date of creation: Oct 2000
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    Publication status: published as Friedman, Benjamin M. "Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking." International Finance 3, 2 (July 2000): 261-72.
    Handle: RePEc:nbr:nberwo:7955
    Note: ME
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    1. 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 321-38, November.
    2. 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.
    3. Woodford, Michael, 2000. "Monetary Policy in a World without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-60, July.
    4. Charles Goodhart, 2000. "Can Central Banking Survive the IT Revolution?," FMG Special Papers sp125, Financial Markets Group.
    5. 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 211-27, July.
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