Crisis and the Role of Money in the Real and Financial Economies—An Innovative Approach to Monetary Stimulus

Abstract

`Financial crisis’ is sometimes regarded as synonymous with `economic crisis’, but this is an oversimplification and risks missing the feedback loops between the financial and real economies. In this paper, the role of money is revisited in the context of distinguishing the real economy from the financial economy. A theoretical framework is developed to explain how endogenous (bank credit) and central bank exogenous (quantitative easing, QE) money creation feed into the real and financial economies. It looks at how the velocity of monetary circulation varies between the two economies and across asset types within the financial economy. Monetary transmission mechanisms are set into a framework that helps explain how QE stimulus risks combining asset price bubbles with poor growth in the real economy. The real economy transmission mechanism of `helicopter money’ is given context, enabling an assessment of the efficacy of both the QE and helicopter money policy routes. Finally, we present a new type of monetary transmission, `Smart Helicopter Money’, to deliver monetary stimulus to innovators, SMEs and high-growth firms via both complementary currencies and a modified form of QE in order to achieve proportionally greater impact on the real economy.

Sustainable Local Development in Relation to Complementary Currencies on the Example of the Polish Currency Zielony

“…A study of the REC initiative provided the cited authors with evidence of the relationship between spending in the form of complementary currency and the promotion and development of the local economy. A similar aspect is highlighted by the results of a study by Simmons et al (2021), who, drawing on the experience of Italian peer-to-peer lending innovator Sardex and the WIR Bank in Switzerland, showed that the two currencies in question contribute to strong, positive countercyclical growth by enabling the creation of interest-free "peer" loans for the small and medium-sized business sector. The case of Argentina's complementary currency Credito and its important role in reviving the economy and strengthening the importance of so-called provincial public services during the Argentine crisis and the collapse of the official peso currency in 2001 was referred to in his research by Kokabian (2020).…”

“…Considering the second complementary problem, in the light of the presented results of our own research, as well as those of other authors cited in the paper (cf. : Kokabian, 2020;Simmons et al, 2021), the influence and impact of the complementary currency Zielony in Poland on the formation of attitudes and behaviour of users of the system and the local economy, and thus on the conditions conducive to equalized local development is positive. The complementary currency Zielony influences the development of entities participating in the system, and thus contributes to strengthening local development.…”

“…The mentioned authors state that complementary currencies play a key role in the development of local economies, building social relations between local residents and finding effective solutions to local problems of environmental nature (Kljucnikov et al, 2020;cf. : García-Corral et al, 2020;Nakazato & Lim, 2017;Richey, 2007;Seyfang & Longhurst, 2013b;Simmons et al, 2021).…”

“…According to Ojeda (2022), "They have been issued by government officials to make payment obligations, secure income, and restore liquidity and demand, or by the private sector to encourage spending, support local economy and producers, and as a mode of resistance to the capitalist system". Wörlg Shilling and WIR Frank made strong positive contributions to countercyclical growth by enabling the creation of interest-free "mutual" credit for small and medium-sized business sectors (Simmons et al, 2021), as well as improving local development by encouraging internal economic flow, preventing large capital accumulation, and maintaining the local environment by preventing capital flight due to its territorial limitations (Dini & Kioupkiolis, 2019;cf. : Hechenberger, 2018;cf.…”

Modelling the Vulnerability of Financial Accounting Systems during Global Challenges: A Comparative Analysis

“…There are other interesting approaches, such as that used in [30], which logically demonstrate that there is a disconnect between the real and financial economies and that the measure of this disconnect is the misallocation of capital into assets and intangible assets. We agree with this vulnerability factor, which leads to price instability, especially during times of crisis.…”