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Going beyond monetary constitutions: The congruence of money and finance

Joshua Hendrickson () and Alexander Salter

The Quarterly Review of Economics and Finance, 2018, vol. 69, issue C, 22-28

Abstract: We extend the literature on ‘monetary constitutions’ by arguing that binding rules must go beyond specifying the behavior of the monetary authority. Instead, a genuine monetary constitution must also be a financial constitution: it must take into account the natural and evolved links between money and banking, treating them as a single institution. We present a unified conception of money and banking, show how modern monetary institutions have severed the traditional links between money and banking, and discuss how macroeconomic stability is an unintended result of a self-enforcing constitution for the money-and-banking system. Finally, we conclude by discussing the implications of our argument for re-orienting the conversation on post-financial crisis stability towards genuinely institutional solutions.

Keywords: Commodity standard; Depositors; Extended liability; Financial constitution; Macroprudential policy; Monetary constitution (search for similar items in EconPapers)
JEL-codes: E42 E44 E52 G21 P16 (search for similar items in EconPapers)
Date: 2018
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