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Bank deregulation, accounting systems of exchange, and the unit of account: A critical review

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  • McCallum, Bennett T.
Abstract
This paper reviews a specific group of recent publications by Black, Fama, Hall, and Greenfield and Yeager that (i) encourage the relaxation of government controls on the banking industry, (ii) emphasize the possibility of an economy in which most transactions are carried out through an accounting system rather than any tangible medium of exchange, and (iii)suggest that improved monetary performance could be induced by separating the unit of account from the medium of exchange.The main substantive conclusions are as follows. First, a system with an unregulated banking sector and a government-issued currency would be viable and might reduce inefficiencies resulting from reserve requirements, a point that has been recognized by neoclassical monetary economists.The second main class of systems discussed in the reviewed papers -- one with a composite-commodity medium of account and no convertibility provision -- is quite different. If there were literally no medium of exchange, the non-coercive government designation of the unit of account would encounter no inconsistency but would be extremely fragile. More realistically, with some circulating private currency the latter would tend to become the medium of account as well as the medium of exchange and would tend to be issued in excess, thereby separating the unit of account from the officially-designated bundle of commodities. Several conclusions regarding analytical approach are also developed.
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  • McCallum, Bennett T., 1985. "Bank deregulation, accounting systems of exchange, and the unit of account: A critical review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 23(1), pages 13-45, January.
    • Handle: RePEc:eee:crcspp:v:23:y:1985:i::p:13-45
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    Cited by:

    1. Leland B. Yeager & Robert L. Greenfield, 1989. "Can Monetary Disequilibrium Be Eliminated?," Cato Journal, Cato Journal, Cato Institute, vol. 9(2), pages 405-428, Fall.
    2. Holger Wolf, 2002. "Imaginary moneys as international units of account," Applied Financial Economics, Taylor & Francis Journals, vol. 12(1), pages 1-8.
    3. Bennett T. McCallum, 2000. "The Present and Future of Monetary Policy Rules," International Finance, Wiley Blackwell, vol. 3(2), pages 273-286, July.
    4. David Cronin, 2017. "Indirect Convertibility, Equity-Based Banking and Financial Stability," Economic Affairs, Wiley Blackwell, vol. 37(3), pages 357-364, October.
    5. Stephen Grenville, 1997. "The Evolution of Monetary Policy: From Money Targets to Inflation Targets," RBA Annual Conference Volume (Discontinued), in: Philip Lowe (ed.),Monetary Policy and Inflation Targeting, Reserve Bank of Australia.
    6. Nelson, Edward, 2013. "Friedman's monetary economics in practice," Journal of International Money and Finance, Elsevier, vol. 38(C), pages 59-83.
    7. Malte Krueger, 2012. "Money: A Market Microstructure Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(6), pages 1245-1258, September.
    8. Marvin Goodfriend, 1991. "Money, credit, banking, and payments system policy," Economic Review, Federal Reserve Bank of Richmond, vol. 77(Jan), pages 7-23.
    9. Dimitrios P Tsomocos & F.H. Capie & City UniversityG.E. Wood & Bank of England and City University, 2005. "Modelling Institutional Change in the Payments System, and its Implications for Monetary Policy," Economics Series Working Papers 2005-FE-01, University of Oxford, Department of Economics.
    10. Ian R. Harper, 1988. "The SRD Requirement and Monetary Policy," The Economic Record, The Economic Society of Australia, vol. 64(3), pages 178-186, September.
    11. Marvin Goodfriend & Bennett T. McCallum, 1988. "Theoretical analysis of the demand of money," Economic Review, Federal Reserve Bank of Richmond, vol. 74(Jan), pages 16-24.
    12. Kenneth A. Froot & Jeffrey A. Frankel, 1986. "Interpreting Tests of Forward Discount Bias Using Survey Data on Exchange Rate Expectations," NBER Working Papers 1963, National Bureau of Economic Research, Inc.
    13. J. Aschheim & G.S. Tavlas, 1994. "Nominal anchors for monetary policy: a doctrinal analysis," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 47(191), pages 469-494.
    14. Strobel, Frank, 2012. "International tax arbitrage, currency options and put-call parity conditions," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(3), pages 473-486.
    15. Colin Rogers, 2011. "The Failure of Woodford's Model of the Channel System in the Cashless Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(2‐3), pages 553-563, March.
    16. Strobel, Frank, 2001. "International tax arbitrage, tax evasion and interest parity conditions," Research in Economics, Elsevier, vol. 55(4), pages 413-427, December.
    17. Alexander Tobon & Nicolas Barbaroux, 2015. "Credit and Prices in Woodford's New Neoclassical Synthesis," Economic Thought, World Economics Association, vol. 4(1), pages 21-46, March.
    18. Colin Rogers & Thomas K. Rymes, 1998. "Indirect Convertibility and Quasi-Futures Contracts: Two Non-Operational Schemes for Automatic Stabilisation of the Price Level?," School of Economics and Public Policy Working Papers 1998-17, University of Adelaide, School of Economics and Public Policy.
    19. Colin Rogers, 2004. "Doing Without Money: A critical assessment of Woodford's analysis," Method and Hist of Econ Thought 0411001, University Library of Munich, Germany.
    20. Colin Rogers, 2003. "Doing Without Money: A Critical Assessment of Woodford's Analysis of Monetary Policy in a Post-monetary World," School of Economics and Public Policy Working Papers 2003-01, University of Adelaide, School of Economics and Public Policy.
    21. P. D. Jonson & R. W. Rankin, 1986. "On Some Recent Developments in Monetary Economics," The Economic Record, The Economic Society of Australia, vol. 62(3), pages 257-267, September.
    22. Cesarano, Filippo, 1995. "The New Monetary Economics and the theory of money," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 445-455, May.

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