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Monetary Policy in Economies with Little or No Money

  • Bennett T. McCallum

The paper's arguments include: (1) Medium-of-exchange money will not disappear in the foreseeable future, although the quantity of base money may continue to decline. (2) In economies with very little money (e.g., no currency but bank settlement balances at the central bank), monetary policy will be conducted much as at present by activist adjustment of overnight interest rates. Operating procedures will be different, however, with payment of interest on reserves likely to become the norm. (3) In economies without any money there can be no monetary policy. The relevant notion of a general price level concerns some index of prices in terms of a medium of account. The liabilities of some official entity might serve as the medium of account, but there could be viable rivals if policy is poor. (4) A broad commodity-bundle monetary standard could be viable, even with a redemption medium, and there is scope for quantitative analysis of the properties of such a system. (5) The number of distinct national currencies may decline sharply, with the emergence of a small number of currency areas and floating exchange rates across these areas.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9838.

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Date of creation: Jul 2003
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Publication status: published as Bennett T. McCallum, 2004. "Monetary Policy In Economies With Little Or No Money," Pacific Economic Review, Blackwell Publishing, vol. 9(2), pages 81-92, 06.
Handle: RePEc:nbr:nberwo:9838
Note: EFG ME
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  1. Woodford, Michael, 1997. "Doing Without Money: Controlling Inflation in a Post-Monetary World," Seminar Papers 632, Stockholm University, Institute for International Economic Studies.
  2. Woodford, Michael, 2000. "Monetary Policy in a World without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-60, July.
  3. Sandra C. Krieger, 2002. "Recent trends in monetary policy implementation: a view from the desk," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 73-76.
  4. 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.
  5. Bennett T. McCallum, 2000. "The Present and Future of Monetary Policy Rules," NBER Working Papers 7916, National Bureau of Economic Research, Inc.
  6. Charles Goodhart, 2000. "Can Central Banking Survive the IT Revolution?," FMG Special Papers sp125, Financial Markets Group.
  7. Leland B. Yeager & Robert L. Greenfield, 1989. "Can Monetary Disequilibrium Be Eliminated?," Cato Journal, Cato Journal, Cato Institute, vol. 9(2), pages 405-428, Fall.
  8. Hall, Robert E., 1983. "Optimal fiduciary monetary systems," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 33-50.
  9. Michael Woodford, 2001. "Monetary policy in the information economy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 297-370.
  10. Schnadt, Norbert & Whittaker, John, 1993. "Inflation-Proof Currency? The Feasibility of Variable Commodity Standards," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 214-21, May.
  11. Marvin Goodfriend, 2000. "Overcoming the zero bound on interest rate policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 1007-1057.
  12. Bennett T. McCallum, 2000. "Theoretical Analysis Regarding a Zero Lower Bound on Nominal Interest Rates," NBER Working Papers 7677, National Bureau of Economic Research, Inc.
  13. Greenfield, Robert L & Yeager, Leland B, 1983. "A Laissez-Faire Approach to Monetary Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(3), pages 302-15, August.
  14. 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.
  15. Greenfield, Robert L & Woolsey, W William & Yeager, Leland B, 1995. "Is Indirect Convertibility Impossible? Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 293-97, February.
  16. Leland B. Yeager, 1983. "Stable Money and Free-Market Currencies," Cato Journal, Cato Journal, Cato Institute, vol. 3(1), pages 305-333, Spring.
  17. Goodfriend, Marvin, 1999. "The role of a regional bank in a system of central banks," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 51-71, December.
  18. Schnadt, Norbert & Whittaker, John, 1995. "Is Indirect Convertibility Impossible? Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 297-98, February.
  19. 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 261-72, July.
  20. Bennett T. McCallum, 1999. "Theoretical Issues Pertaining to Monetary Unions," NBER Working Papers 7393, National Bureau of Economic Research, Inc.
  21. Fama, Eugene F., 1983. "Financial intermediation and price level control," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 7-28.
  22. Milton Friedman, 1951. "Commodity-Reserve Currency," Journal of Political Economy, University of Chicago Press, vol. 59, pages 203.
  23. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
  24. Robert E. Hall, 1982. "Explorations in the Gold Standard and Related Policies for Stabilizing the Dollar," NBER Chapters, in: Inflation: Causes and Effects, pages 111-122 National Bureau of Economic Research, Inc.
  25. 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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