Monetary policy with asset-backed money

Abstract

We study the use of asset-backed money in a neoclassical growth model with illiquid capital. A mechanism is delegated control of productive capital and issues claims against the revenue it earns. These claims constitute a form of asset-backed money. The mechanism determines (i) the number of claims outstanding, (ii) the dividends paid to claim holders, and (iii) the structure of redemption fees. We find that for capital-rich economies, the first-best allocation can be implemented and price stability is optimal. However, for sufficiently capital-poor economies, achieving the first-best allocation requires a strictly positive rate of inflation. In general, the minimum inflation necessary to implement the first-best allocation is decreasing in capital wealth.

Vital Issues for the Jurisprudential Adaptation of Cryptocurrencies

“…The fluctuations in the values of banknotes after relinquishing fiat currencies from gold in the early 1970s. Moreover, the ineffectiveness of monetary policies to control the size of the money supply, made some economists to call for reforming the monetary system by pegging the process of issuing money to assets or commodities (Andolfatto, et al, 2016;Lietaer, 2017). Furthermore, some emerging economies like Thailand before the eruption of Asian crisis in late 1990's, and Saudi Arabia pegged their currencies to the U.S. dollar.…”

Optimal monetary policy with interest on reserves and capital over-accumulation

“…Our paper is concerned with the fiscal implications of IOER, a concern often ignored in the New Keynesian literature, such as Cúrdia and Woodford (2011) who study IOER in a model where reserves reduce the cost of financial intermediation. 4 Instead, we give explicit transaction roles for various nominal assets, including reserves. Moreover, we follow the same line of thoughts as in Berentsen et al (2014), and assume that the government does not have the coercion power to levy lump-sum taxes (although it may tax banks based on voluntary participation).…”

Can currency competition work?

“…The possibility of having a private monetary arrangement consistent with Friedman's optimum quantity of money has recently been studied by Monnet and Sanches (2015) and Andolfatto, Berentsen, and Waller (2016). Monnet and Sanches (2015) characterize a monetary arrangement in which privately issued debt claims circulate as a medium of exchange.…”

“…In their analysis, the debt claims are associated with an explicit promise by the issuer to redeem them at some expected value. Andolfatto, Berentsen, and Waller (2016) study the properties of a monetary arrangement in which an institution with the monopoly rights on the economy's physical capital issues claims that circulate as a medium of exchange. However, these arrangements are fundamentally different from our analysis of currency competition.…”