If we abolish money from economic theory, what replaces it? The answer is: financial assets. Although this might be viewed as a superficial change, there are important implications. In particular, the central bank can manipulate the amount outstanding of some types of financial assets, but it cannot control all of them. We end up with a more realistic view of central bank power. They no longer control “money” and hence all commerce, rather they are reduced to worrying about setting interest rates.…This is short, simple to understand and very important for getting MMT, which deals with "financial assets" rather than "money." Financial assets appear on accounting statements, not "money." Understanding this removes a lot of confusion.
Bond Economics
Book Excerpt: Financial Assets Matter, Not Money
Brian Romanchuk
Replacing “money” with “financial assets” may appear innocuous, but it delivers us from the delusion that central banks have arbitrary power to steer the economy. Brian Romanchuck
ReplyDeleteIf the CB can't steer the economy, one reason is surely that the economy may not use CB liabilities (i.e. a Nation's fiat) but must instead use mere liabilities for fiat, i.e. bank deposits, except for the pitiful exception of physical fiat, coins and bills, aka "cash."
But if the economy could use fiat, then the CB's authority and power to set interest rates could have profound consequences, especially if individual citizens had a negative-interest-free exemption up to a reasonable limit on account size.
“central banks have arbitrary power to steer the economy.“
ReplyDeleteIf they add reserves it forces fiscal agents to reapply stated regulatory capital to support those new nonrisk assets and away from both existing and potential future risk asset levels...