Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking

18 Pages Posted: 12 Oct 2000 Last revised: 19 Oct 2010

See all articles by Benjamin M. Friedman

Benjamin M. Friedman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 2000

Abstract

The threat to monetary policy from the electronic revolution in banking is the possibility of a decoupling' of the operations of the central bank from markets in which financial claims are created and transacted in ways that, at some operative margin, affect the decisions of households and firms on such matters as how much to spend (and on what), how much (and what) to produce, and what to pay or charge for ordinary goods and services. The object of this paper is to discuss how this possibility arises and what it implies, to dismiss as unessential to the argument various extreme characterizations that have arisen in the recent debate on this issue (for example, that no one will use money for ordinary economic transactions), and to address the specific arguments on the issue offered by Charles Goodhart, Charles Freedman and Michael Woodford.

Suggested Citation

Friedman, Benjamin M., Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking (October 2000). NBER Working Paper No. w7955. Available at SSRN: https://ssrn.com/abstract=245624

Benjamin M. Friedman (Contact Author)

Harvard University - Department of Economics ( email )

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