Monetary Policy in a Cashless Society

31 Pages Posted: 28 Feb 2001

See all articles by Claudia Costa Storti

Claudia Costa Storti

Banco de Portugal

Paul De Grauwe

London School of Economics & Political Science (LSE); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)

Date Written: February 2001

Abstract

In this Paper we analyse how monetary policies will be affected in a cashless society. Our main conclusions are that the central bank will lose its traditional instruments of monetary policy. Open market operations and advances to banks will become ineffective as instruments to control the interest rate and the money stock. We argue that this leads to two possible avenues for the future role of the central bank. In the first one the central bank becomes dependent on the treasury, both as a means to obtain revenues and as a way of maintaining some effectiveness of its traditional monetary policy instruments. Another avenue consists of strengthening the supervisory role of the monetary authority. This strengthening would include the quality control of the loan portfolios of the money issuing institutions as a way of ensuring market stability and to avoid bank runs. Simultaneously, supervision would allow the central bank to impose reserve requirements and to influence the money supply.

Keywords: Cashless Society, Electronic Money, Monetary Policy

JEL Classification: E40, E50

Suggested Citation

Costa Storti, Claudia and De Grauwe, Paul, Monetary Policy in a Cashless Society (February 2001). CEPR Discussion Paper No. 2696. Available at SSRN: https://ssrn.com/abstract=261872

Claudia Costa Storti (Contact Author)

Banco de Portugal ( email )

Ave Almirante Reis 72
1150 Lisbon
Portugal
+351 21 313 0823 (Phone)
+351 21 352 3505 (Fax)

Paul De Grauwe

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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