Money Creation in Different Architectures

Hans Gersbach and Salomon Faure

No 13156, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We examine monetary architectures in which money is solely created by the public and lent by the central bank to the private sector. We compare them to today's fractional-reserve system in which money is created mainly by commercial banks. We use a simple general equilibrium setting and determine under which conditions these architectures yield the same welfare and stability outcomes and under which conditions they do not. We show, in particular, that the decentralized sovereign money system yields the same level of money creation and allocation of commodities as the fractional-reserve monetary system if the central bank solely pursues interest-rate policy.

Keywords: Money creation; Chicago plan; Full-reserve banking; 100% reserve banking; Monetary architecture; Monetary system; Capital regulation; Reserve requirement; Monetary policy; Price rigidities (search for similar items in EconPapers)
JEL-codes: D50 E4 E5 G21 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pay
References: View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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