SSE/EFI Working Paper Series in Economics and Finance
No 48:
On the Spontaneous Freezing of the Monetary Base
Per Hortlund
Abstract: The paper explores the question of whether markets under
laissez-faire will be able to insulate an economy from bad government
money. Some recent proposals favour freezing the monetary base, by
abandoning central bank operations. This requires active participation by
the monetary authorities, however. On the other hand, the network
externality makes a switch from central-bank currency difficult. The paper
investigates how the dilemma could be overcome and the monetary base be
spontaneously frozen, by a process where commercial banks issue liabilities
that are redeemable only into central bank notes issued before a certain
date.
Keywords: Free banking; monetary evolution; currency competition; (follow links to similar papers)
JEL-Codes: E4; E5; G2; (follow links to similar papers)
28 pages, March 1995
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