Peter Stella is an experienced IMFer on a crusade to champion base money understanding in a world of hard money obsessives who refuse to listen to reason.
From his latest blog post this week:
Bank reserves are demand deposits held at the central bank. Individual banks can and do transfer deposits among themselves constantly during business hours through electronic large value transfer systems (LVTS). Among the universe of LVTS, the largest are FEDWIRE and CHIPS in the US, CHAPS in the UK, BOJNET in Japan and TARGET2 in the Eurozone. From an individual bank’s perspective, reserves are “ultimate” liquidity—available instantly in real time to satisfy payments obligations to other banks.
The Bank of England is perhaps a little late getting around to this explanation of money creation and a debunking of the money multiplier theory… but that really doesn’t mean it shouldn’t get a wide reading.
Do click through for the full thing and we’ll put some tl;dr fodder below the break:
Forget about the $1 trillion coin debate.
The most exciting wonky discussion being had right now is between Steve Randy Waldman and Paul Krugman over whether “base money” and short-term debt are perfectly substitutable or not, and what that may or may not mean for central bank policy.
We confess that we have a bit of a vested interest here because for a long time we’ve been arguing much the same point as Waldman.
That’s not to say that Krugman is necessarily wrong; he may just be taking Waldman slightly too literally. Read more
FT Alphaville had an interesting email exchange with Peter Stella this past week, snippets of which we would like to share (with Stella’s permission).
Stella is currently the director of Stellar Consulting, an organisation that provides macroeconomic policy advice and research to central banks, governments, and private clients. He was formerly the head of the Central Banking and Monetary and Foreign Exchange Operations Divisions at the International Monetary Fund. He has co-authored a number of papers on the topics of money supply, collateral and risk-free assets. Read more
Since the twelfth century, the coinage of the realm has been assayed in an arcane ritual known as the Trial of the Pyx.
Every February for the past 800-odd years, a delegation from the Royal Mint, under armed guard, has brought a set of small chests (pyx) to Goldsmiths’ Hall (previously to Westminster Abbey) for the ceremony. The pyx have been loaded with coins – one coin from every batch of each denomination minted in the year. Usually several thousand. Read more