Modelling Institutional Change in the Payments System, and its Implications for Monetary Policy

Dimitrios Tsomocos, F.H. Capie, City UniversityG.E. Wood and Bank of England and City University

No 2005-FE-01, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Many institutional changes have taken place to payments systems. Indeed, they have been in continual change ever since money first emerged as the dominant technology for conducting transactions. Means of settlement between banks have changed: cheques replaced cash in many transactions, and they have in their turn been replaced partially (much more in some countries than others) by cards. The aim of this paper is to appraise one such possible technological development, namely electronic barter, and to model both it and money transactions technologies. By comparing the models, we shall be able to appraise the future of fiat money. We argue that the economising properties of fiat money will allow it to survive, despite actual and hypothesised technical progress which reduces the cost of elecronic barte.

Date: 2005-01-01
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