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The '100% money' proposal aims at divorcing the creation of money from banking, by requiring 100% reserves on transaction accounts. The public monetary authority would then be the sole issuer of means of payment, while the banks would function as true intermediaries, financing loans with pre‐existing money. This article, building on the works of 1930s economists such as Irving Fisher, presents ten arguments in favour of this reform proposal — arguing that it would, in particular, prevent cumulative variations in the money stock, facilitate monetary control, reduce government intervention in banking, improve public finances, and make money creation more neutral. [ABSTRACT FROM AUTHOR]

This article presents a comment on the article "Money Supply Control and Lagged Reserve Accounting." The author examines the ability of the U.S. Federal Reserve to control the money supply under lagged reserve accounting. The author examines how manipulation of the interest rate can impact the demand for money and presents a model that is designed to test how effectively this method of control works. The author's findings suggest that authorities can control the money stock by manipulating that base control.

The article provides information on a paper which discusses instrument choice for money stock control with contemporaneous and lagged reserve requirements. The authors suggest that the paper examined is the first to utilize a model which treats output and prices as endogenous and that incorporates rational expectations. The article discusses the importance of distinguishing between banking systems with contemporaneous reserve requirement (CRR) and lagged reserve requirements (LRR). The authors explain that this is important because monetary control is usually poorer with LRR than with CRR. Several equations are presented to help illustrate the study.

The article discusses how money stock can be controlled by the monetary authority through economic policy as a way to accomplish the goals of its intermediate targets. The root-mean-square deviation (RMSC) is used to assess the control of the intermediate targets. The optimal control framework used here is based on an econometric model that represents the economy and it is assumed that the model is linear. The version of the model that is used in this experiment is based on a short run money market model that was developed by the U.S. Federal Reserve Board.

The article discusses the money supply and lagged reserve accounting, particularly the motivation behind the system and the results of its early use. It has been suggested that this system of monitoring reserves has led to volatile money market rates and the use of certain open market operations. The impact of policies from the U.S. Federal Reserve on interest rates and the federal funds rate could impact the orientation of the open market operations. The article concludes that the Federal Reserve's reserve requirements have impacted interest rates and the way in which economic equilibrium is achieved.

The purpose of this comment (reply) is to point out that Kopecky's argument is based upon a very restrictive interpretation of what it means to impose FRS reserve requirements on nonmember banks and to defend the validity of my test method. Section I presents the most important elements of Kopecky's model (slightly modified by me)—the model which he employs in arguing against my test method. Section II points out the critical assumption upon which Kopecky's argument rests and explains why my test method is valid. Section III contains some final remarks. [ABSTRACT FROM AUTHOR]

Beginning September 12, 1968, a set of changes in Regulation D went into effect, including two major ones which are referred to as the lagged accounting system. One of these sets required reserves in the current period (week) according to deposits two weeks ago, while the other specifies that a bank's "current" reserves consist of current reserve balances on deposit at the Fed and vault cash two weeks ago. It is the object of this paper to examine some implications of these two regulations for the control of the money supply via reserve aggregates. [ABSTRACT FROM AUTHOR]

One of the primary and most important tasks of any central bank is conducting monetary policy in the state. In Macedonia the only central and issuing bank is the National Bank of Macedonia, which is responsible for the monetary and financial stability in the country, while performing important functions, without which the overall economic and financial system could not exist. In exercising its functions, the National Bank of Macedonia uses a set of economic instruments and policies, from which in RM the most efective is the required resserve. This monetary tool is showing the best results in developing countries where the financial markets are not developed and where there is a high concentration of the banking sector (in RM banks occupy a good 98% of total financial institutions). The role of the reserve will be analyzed through the prism of its effects on the process of multiplication the money supply in the country and its contribution to generating or withdrawal of money by the central bank. The main goal of the paper is to research the required reserve, as a monetary instrument, and to qualify its impact on the monetary creation in the Republic of Macedonia. The basic methods, used in this paper are the positive analysis, comparative analysis and deductive approach. [ABSTRACT FROM AUTHOR]

China's growing foreign exchange reserve is estimated to exceed $2 trillion by 2010. The purpose of its paper is to examine its impact on the balance sheet of the Chinese central bank, the money supply and the bond market. The paper will then move on to discuss its social welfare effect by comparing the estimated future return of the foreign exchange reserves with its opportunity costs measured by the potential return of domestic investments. [ABSTRACT FROM AUTHOR]

India's foreign exchange reserves have risen rapidly since the balance-of-payment crisis in 1991 to over US$155 billion by mid-2006. India is now the fifth largest Asian reserve holder. Despite this, scant attention has been paid to the rationale for and impact of reserves accumulation in India. This paper estimates the extent of de facto sterilization and capital mobility concurrently for the period 1990:q1-2004:q4. While India appears to have sterilized capital inflows quite aggressively, as the extent of de facto capital mobility continues to rise, it might become increasingly difficult to continue to sterilize going forward. [ABSTRACT FROM AUTHOR]

The article discusses the startling emergence of the Deutsche Mark (DM), the most stable German currency for more than a generation, from 1968-1969 wherein speculators and small savers across Western Europe raced to exchange their currencies for the Deutsche Mark in Germany. The reserves of West Germany's central bank, the Bundesbank, has increased by DM 9.4 million in the first three weeks of November 1968 with DM 7.3 billion arriving in just three days of trading. It also examines the learning curve of DM to give way to a more cooperative understanding of the international monetary system. However, the Social Democrats' vision prevailed the cost of awakening expectations among West German workers, which would not easily be satisfied.

Currency boards are subject to runs if the foreign currency reserve is insufficient to back the convertible money supply. We construct a simple model and show how pre-specified optimal reserve commitments can avert currency board runs. If there exists asymmetric information on the government's resolve, the government can also use commitments as a costly signal to induce a separating equilibrium. The model can be adapted to analyze other hard-fixed exchange rate systems such as dollarizations and monetary unions. We illustrate the implications of our model in terms of the recent success in Hong Kong and possible remedies for Argentina. [ABSTRACT FROM AUTHOR]

Studies the feasibility and applicability of a currency board system in Turkey. Types of currency board systems; Feasibility conditions of a currency board; Money-supply theory in a currency board system; Relationship between the reserve money, foreign trade balance, public deposits and the foreign exchange deposit accounts; Cointegration analysis of the variables affecting the money-supply and reserve money.

Provides information on a study which investigated the direction of causality between the money supply and reserve money for some selected Caribbean countries. Econometric methodology; Sources of data; Findings; Conclusion.

Presents statistics on domestic finance in the United States as of April 2001. Reserves, money stock, and debt measures in 2000; Reserves of depository institutions and reserve bank credit from November 2000 to January 2001; Reserves and borrowings from December 1998 to January 2001; Federal reserve bank interest rates; Reserve requirements of depository institutions; Federal reserve open market transactions from 1998 to 2000.

Presents charts that illustrate the financial condition of the United States (US), provided by the US Federal Reserve as of February 1999. Reserves, money stock, liquid assets and debt measures; Reserves of depository institutions and reserve bank credit; Reserves and borrowings.

Presents several tabular presentations on reserves, money stock, liquid assets and debt measures. Federal Reserve Open Market Transactions; Aggregate Reserves of depository institutions and monetary base; Deposit interest rates and amounts outstanding; Commercial Banks in the United States.

This paper proposes to deal with this neglected aspect of reserve diffusion by applying a modified Markov chain analysis to the study of the process of money and credit expansion in response to an injection of additional reserve base. The model of money supply expansion presented above is like all linear models in economics, e.g. the multiplier--accelerator model, the input--output model, linear programming model, etc., in that it merely provides a basic framework on which subsequent modifications and embellishments are to be added. [ABSTRACT FROM AUTHOR]

This article attempts an analysis of official reserves and the foreign exchange rate in France, covering both fixed exchange rates and flexible exchange rates, that is, 39 quarters of fixed rates, 1962.1-1971.3, and 13 quarters of flexible rates, 1971.4-1974.4. The cost is the presence of errors in the simultaneous equation estimates of the exchange rate during the period of fixed rates. But the benefit is an econometric analysis founded on 52 observations, and yet covering three years of flexible rates. Since the errors in the estimates of the exchange rate under fixed rates are quite moderate, the cost would seem to be worth the benefit. The most important characteristic of this work is the use of a detailed structural model of bank credit and money in testing the monetary approach. The article examines the extent to which varying and tenable money measures in France yield convergent results. It take real income as given and ignores the balance of trade and the terms of trade. By eschewing information about absorption or the terms of trade, anything to do with imports or exports of commodities as such, it avoids this restriction and examines a particularly strong version of the monetary approach.

Commercial bank behavior is not adequately dealt with in existing macro models of the financial sector. The central role of a demand for excess reserves (or free reserves) function in models of the money supply process is particularly suspect. In this paper, it' is argued that changes in commercial bank behavior induced by alterations in economic and financial conditions and various banking regulations, along with the central bank's approach to policy, have combined to alter the excess reserve function and the relationship between bank reserves and the money supply. Empirical work presented suggests that the "demand" for excess reserves has indeed undergone structural change. Thus, the study indicates that conventional approaches to commercial bank behavior and the demand for excess reserves need to be reworked. [ABSTRACT FROM AUTHOR]

Abstract--The theories on the demand for international reserves and the monetary approach to the balance of payments are empirically integrated by estimating a dynamic equation that explicitly allows reserves movements to reflect the monetary authority's excess demand for international reserves, and the public's excess demand for money. The results obtained, using a sample of developing countries, confirm the hypothesis that reserves movements respond both to monetary factors and to differences between actual and desired reserves. These results indicate that the exclusion of monetary considerations from the dynamic analysis of international reserves will yield biased coefficients. [ABSTRACT FROM AUTHOR]

Examines the interdependent nature of monetary policies. Discoveries made regarding the Cournot, or noncooperative, solution and the Stackelberg leadership solution and their relation to the contract curve; Effect of creation of international reserves.

In a recent article (Coghlan, 1978b) I outlined a model of the money supply which laid emphasis on the demand for credit as opposed to the more usual exogenous issue of high powered money. This argument was developed within the context of a closed economy, and the objective of this paper is to extend the analysis to an open economy, in particular to derive the implications of this view for the international monetary approach to the balance of payments. This is not simply an abstract academic exercise, but should be of practical relevance; particularly given the growing importance of this latter approach in analysing and interpreting economic behaviour and policy.
The paper is divided into three quite distinct, but inter-related, parts. The next section argues that the international monetarist approach is deficient in not recognising an independent demand for credit, in addition to the demand for money. Because our main concern is with the practical application of the monetary approach, this is followed by an analysis of UK monetary and balance of payments statistics in order to demonstrate how the monetary approach can be interpreted in practice. This analysis reveals clearly the scope which exists for governments to sterilize external flows, and the implication for non-symmetrical adjustment is briefly discussed in the final section. [ABSTRACT FROM AUTHOR]

This paper examines empirically the money supply process from 1970 to 1986. We find that the process itself was not invariant to the Fed's changes in operating procedure.[1] Thus, the effect of these changes did not lead to more or less control of money by the Fed under the same money supply process. Rather, the changes in the Fed's procedure led to changes in the money supply process which, in the case of the first change in procedure at least, largely thwarted the aims of the Fed regarding money control. We show that the switch to a reserves operating procedure, which has since been modified but not completely abandoned, has failed to overcome the short-run endogeneity or demand-determination of money which the Fed had experienced prior to October 1979 because the banking system has changed its behavior with respect to the link between reserves and money supply under the newer procedure. [ABSTRACT FROM AUTHOR]

In an earlier paper, where we examined how regulations and procedures influenced the stability of money supply functions and the effects of money demand on money supply, it was argued that our knowledge of the money supply process, the reliability and predictive power of our models, and the precision of monetary control would all be enhanced by more careful consideration of such salient features of the financial system [15]. Believing that joining the core issues in the ongoing debate over various aspects of monetary control depends in part on pinning down the proximate effects, if any, of the October 1979 changes in the Fed's operating procedures, this paper examines essential features of the stochastic structure linking reserves, money, and interest rates under the procedures then adopted. In the next section, we briefly review the analytical framework developed in our earlier paper and use it to illustrate the nature of the changes which occurred under the new strategy. The third section presents empirical work bearing on the central relationships and compares the post-1979 results with our earlier findings. The concluding section develops the implications of the analysis for recurring issues in monetary control. [ABSTRACT FROM AUTHOR]

In a recent article in this Journal, Lombra and Torto [4] argued (a) that Federal Reserve "defensive" open market operations, during the 1953-1968 period covered by the Andersen-Jordan analysis [1], included accommodation of changes in the demand for deposits, (b) that in consequence of this behavior by monetary authorities the monetary base is an endogenous variable, and (c) that defensive actions by monetary authorities are a measure of the reverse influence of economic activity on the monetary base. Defensive actions, as viewed by Lombra and Torto, cover those given this designation by Roosa [6] and the money market strategy described by Guttentag [2].
The purpose of this communication is to consider the degree of accuracy of a conclusion, not explicitly stated by them, that seems to follow from their analysis and presentation and is of great importance for national economic policy. This inferential conclusion is that the Federal Reserve authorities have far less influence on gyrations in the stock of money and hence on business downswings and upswings and on price inflation than the "monetarists" believe. The following comments are intended to summarize reasons and factual data supporting the invalidity of that conclusion. [ABSTRACT FROM AUTHOR]

Tests the validity of 'reserve price setting' and 'reserve quantity setting' behavior of the monetary authorities. Control of the monetary authorities on short-term interest rates as an exogenous policy instrument; Role of market forces in the determination of long-term rates; Dependence of long-term rates on market participants' collective expections of the level of future short-term rates.

The 100 per cent reserve plan raises the question of the location of the right of issue as well as that of the principles which should govern issue--The former only will be here discussed--Principles governing the location of the issue power and historical deviations therefrom--Commercial bank demand deposits as money and the factors affecting their use--Delegation of the power of issue to the banks and the fiscal consequences--Net equity or inequity of the system difficult to determine but the economic results warrant suspicious scrutiny--Frustration of banking functions and the evil effects both on society at large and on the banks themselves--The 100 per cent reserve system as a remedy--Demands for the socialization of banking arise from misconceptions--The real need is for socialization of the supply of money with practical laissez faire for commercial banking operations. [ABSTRACT FROM AUTHOR]

Recent studies of money-supply determination have led to conclusions that the Federal Reserve through its open-market transactions can control certain variables which are closely related to the money stock. These variables are high-powered money, the monetary base, total reserves and Federal Reserve holdings of government securities. This article investigates the question of how effective the Federal Reserve might be in controlling these variables, and hence money, in the short run, in view of strong seasonal and irregular forces impinging on each. The results of this study lead to the conclusion that the defensive operations of the Federal Reserve have been quite successful with regard to offsetting seasonal-irregular movements in free reserves and total reserves, despite attention given to other short-run guides. This gives support to the proposition that the System could also control to a high degree short- run movements in high-powered money and the monetary base and, hence, in the money stock.

The article examines the actual behavior of banks in the U.S. after the change in the legal status of vault cash. Banks can no longer count vault cash as legal reserves after December 1959. Details of the reasons given by Milton Friedman for his expectation that the change in the legal status of vault cash would lead to a higher level of free reserves are outlined. An approach based on the revised theory of money-supply determination to predict the behavior of the free reserve ratio is described.

In this paper, we shall take an inventory-theoretic approach to the third problem. It arises from the fact that, with fixed exchange rates, reserves have the function of a buffer stock against fluctuations. Kenen and Yudin [13] suggested that, for several countries, the behaviour of the month-to-month changes in reserves may be described by a Markov process, and adduced some evidence for this suggestion. Our own estimates, reported in Section II and the Appendix, indicate, however, that the simple Markov model of changes in reserve levels is, in fact, applicable to very few countries, whereas we have some fairly firm results on the autoregressive structure of the reserve series themselves. These empirical results have led us to reject the Kenen-Yudin model in favour of a different statistical representation of the time series for reserves. [ABSTRACT FROM AUTHOR]

Comments on an article about the European Monetary System published in "De Economist." Views towards the conclusion of the author concerning the failure of the Bretton Woods system; Stance on the author's view that central bank interventions are the only external influence on the domestic money supply; Difference of opinion in the assumptions about free cash reserves.