Search

The Dutch bank florin was the dominant currency in Europe during much of the 17th and 18th centuries. The florin, a fiat money, was managed by an early central bank, the Bank of Amsterdam. Using a new reconstruction of the Bank of Amsterdam's balance sheet, we analyze the florin's loss of reserve currency status during the period 1781-92. The reconstruction shows that by 1784, accommodative policies rendered the Bank of Amsterdam "policy insolvent," meaning that its net worth would have been negative under continuation of its policy objectives. Policy insolvency coincided with the Bank of Amsterdam's loss of control over the value of its money. [ABSTRACT FROM AUTHOR]

Publicly owned or commissioned banks were common in Europe from the 15th century. This survey argues that while the early public banks were characterized by great experimentation in their design, a common goal was to create a liquid and reliable monetary asset in environments where such assets were rare or unavailable. The success of these banks was, however, never guaranteed, and even well-run banks could become unstable over time as their success made them susceptible to fiscal exploitation. The popularization of bearer notes in the 18th century broadened the user base for the public banks' money but was also accompanied by increased fiscal abuse. Wartime demands of the Napoleonic Era resulted in the reorganization or dissolution of many early public banks. A prominent exception was the Bank of England, whose adept management of a fiscally backed money provided a foundation for the development of central banks as they exist today. [ABSTRACT FROM AUTHOR]

In 1683 the Bank of Amsterdam introduced a form of fiat money that successfully competed with the coinage of the time. We argue that the principal motive for this monetary innovation was the uncertain value of coins circulating within the Dutch Republic. The Bank's fiat money regime persisted until the downfall of the Dutch Republic in 1795 and incorporated modern features such as gross settlement of financial obligations, open market operations, central bank repurchase agreements (the equivalent thereof), and emergency liquidity facilities. [ABSTRACT FROM AUTHOR]

In August 1763, northern Europe experienced a financial crisis with numerous parallels to the 2008 Lehman Brothers episode. The 1763 crisis was sparked by the failure of a major provider of acceptance loans, a form of securitized credit resembling modern asset-backed commercial paper. The central bank at the hub of the crisis, the Bank of Amsterdam, responded by broadening the range of acceptable collateral for its repo transactions. Analysis of archival data shows that this emergency source of liquidity helped to contain the effects of the crisis, by preventing the collapse of at least two other major securitizers. While the underlying themes seem to have changed little in 250 years, the modest scope of the 1763 liquidity intervention, together with the lightly regulated nature of the eighteenth century financial landscape, provide some informative contrasts with events of late 2008. [ABSTRACT FROM AUTHOR]

We investigate a fiat money system introduced by the Bank of Amsterdam in 1683. Using data from the Amsterdam Municipal Archives, we partially reconstruct changes in the bank's balance sheet from 1666 through 1702. Our calculations show that the Bank of Amsterdam, founded in 1609, was engaged in two archetypal central bank activities—lending and open market operations—both before and after its adoption of a fiat standard. After 1683, the bank was able to conduct more regular and aggressive policy interventions, from a virtually nonexistent capital base. The bank's successful experimentation with a fiat standard foreshadows later developments in the history of central banking. [ABSTRACT FROM AUTHOR]

This paper presents a monetary-theoretic model to study the implications of networks' collection of personal identifying data and data security on each other's incidence and costs of identity theft. To facilitate trade, agents join clubs (networks) that compile and secure data. Too much data collection and too little security arise in equilibrium with noncooperative networks compared with the efficient allocation. A number of potential remedies are analyzed: mandated limits on the amount of data collected, mandated security levels, reallocations of data-breach costs, and data sharing through a merger of the networks. [ABSTRACT FROM AUTHOR]

A controversial aspect of payment cards has been the ‘no-surcharge rule.’ This rule, which is part of the contract between the card provider and a merchant, states that the merchant cannot charge a customer who pays by card more than a customer who pays by cash. In this paper we consider the design of an optimal card-based payment system when cash is available as an alternative means of payment. We find that a version of the no-surcharge rule emerges as a natural and advantageous feature of such a system. [ABSTRACT FROM AUTHOR]

The Bank of Amsterdam, founded in 1609, was the first public bank to offer accounts not directly convertible to coin. As such, it can be described as the first true central bank. The debut of central bank money did not result from any conscious policy decision, however, but instead arose almost by accident, in response to the chaotic monetary conditions during the early years of the Dutch Republic. This paper examines the history of this momentous development from the perspective of modern monetary theory. [ABSTRACT FROM AUTHOR]

The quintessential crime of the information age is identity theft, the malicious use of personal identifying data. In this paper we model "identity" and its use in credit transactions. Various types of identity theft occur in equilibrium, including "new account fraud," "existing account fraud," and "friendly fraud." The equilibrium incidence of identity theft represents a tradeoff between a desire to avoid costly or invasive monitoring of individuals on the one hand and the need to control transactions fraud on the other. Our results suggest that technological advances will not eliminate this tradeoff. [ABSTRACT FROM AUTHOR]

This paper outlines a model of the first true central bank, the Bank of Amsterdam, founded in 1609. Employing a variant of the Freeman (1996) model of money and payments, we first analyze the problematic monetary situation in the Netherlands prior to the founding of the Bank. We then use the model to describe how the Bank could remedy this situation by creating a stable medium for the settlement of commercial obligations. [ABSTRACT FROM AUTHOR]

What are the benefits provided by a payment system? What are the tradeoffs in public versus private payment systems and in restricted versus open payments arrangements? Modern payment systems encompass a variety of institutional designs with varying degrees of counterparty protection. We develop a framework which allows for an examination and comparison of payment systems and specification of conditions leading to their adoption. We relate these conditions to the design of present large-value payment systems (Fedwire, CHIPS, Target, etc.). [ABSTRACT FROM AUTHOR]

Focuses on the important steps in the development of debt instrument in the United States. Decentralization of the economy and role of money; Stability of macroeconomics and financial markets; Importance of payment as incentive effects on the payor; Advantages of transferable debt over simple chains of credit.

Foreign exchange transactions are subject to a unique type of settlement risk. This risk ultimately stems from the difficulty of coordinating separate settlements in two different currencies. Settlement of foreign exchange transactions through the proposed CLS (”Continuous Linked Settlement“) Bank has been discussed as a potential solution to this problem. This paper describes the CLS proposal and analyzes the incentives it places on banks engaged in foreign exchange transactions. The analysis shows that while settlement through the CLS Bank may represent an improvement over current arrangements, some important problems associated with foreign exchange settlements will remain. [ABSTRACT FROM AUTHOR]

Foreign exchange transactions are subject to a unique type of settlement risk. This risk ultimately stems from the difficulty of coordinating separate settlements in two different currencies. Settlement of foreign exchange transactions through the proposed CLS (”Continuous Linked Settlement“) Bank has been discussed as a potential solution to this problem. This paper describes the CLS proposal and analyzes the incentives it places on banks engaged in foreign exchange transactions. The analysis shows that while settlement through the CLS Bank may represent an improvement over current arrangements, some important problems associated with foreign exchange settlements will remain. [ABSTRACT FROM AUTHOR]

Examines the role played by banks as payment intermediary between buyer and seller using the medieval banks of continental Europe as models. Use of the process in an environment of intermediate good exchange with incomplete contract enforcement; Capability of early banks to access the `netting credit' existing by virtue of there being a high proportion of offsetting transactions in an economy.

Investigates the welfare cost of a payment system that operates as a real-time gross settlement system. Evidence that the cost of such systems does not derive from `gridlock'; Examination of the welfare consequences of approaches to the allocation of daylight credit by central banks; Effectiveness of collateralization and charging an administered intraday interest rate.

Examines whether transactable forms of privately issued, demandable dent are better used as banknotes or checks. Cost of early redemption; Limitation of the bank's risk-taking behavior due to early redemption; Payment arrangements; Implications for regulation of new forms of payment.

Presents a result of a study which supports the conclusion that check `float,' that is, the time lag between receipt and clearing, is the potential explanation for the continued popularity of check payment. Model used which allows for the examination of the costs of float in a general equilibrium; Effect of the presence of float on equilibrium allocations; Imperfect competition in banking markets.

Explains the predictability smile in the term structure of interest rates. Prediction of movements in interest rates by spreads between long maturity rates and short rates; Involvement of interest rate smoothing by the United States Federal Reserve and time-varying risk premia on accounts for portions of the smile.

Compares the relative merits of net and gross settlement of interbank payments in the United States. Information on the various rules governing large-value interbank payment networks; Example of a model of interbank settlement; How the incentive problems faced by interbank payments networks can be better modeled; Discussion of the effects of changes in the volume of payments flows or changes in the intervals between settlement.

Questions why banking institutions settle payments in cash as opposed to debt. Application of the Diamond-Dybvig model; The environment; Modeling the Settlement process; Implications; Conclusions and references.

An extensive literature in monetary theory has emphasized the role of money as a record- keeping device. Money assumes this role in situations where using credit would be too costly, and some might argue that this role will diminish as the cost of information, and thus the cost of credit-based transactions, continues to fall. In this paper we investigate another use for money: the provision of privacy. That is, a money purchase does not identify the purchaser while a credit purchase does. In a simple trading economy with moral hazard, we compare the efficiency of money with that of credit and find that money may be useful even when information is free. [ABSTRACT FROM AUTHOR]

Examines the costs and benefits of transactions privacy. Application of the standard Coasian logic; Obstacles to Coasian bargaining; Initial assignments of rights.

States that net settlement can prevent certain gridlock situations which may arise in gross settlement in the absence of delivery versus payment requirements. Emphasis on interbank payment systems; Interpretation of agents' trading in intermediate goods as a proxy for any trading of financial claims; Differences in the legal characteristics of different goods.