Making Money Safe

Abstract

The lack of a feasible option for holding large sums of money in nondefaultable account form gives rise to unstable, panic-prone private money issuance. Providing a viable alternative that could crowd out private money issuers would be an unambiguous win for financial stability. The Federal Reserve (the Fed), however, recently rejected an attempt by one of its former employees to provide such an alternative. This essay argues that the Fed's rationale for this rejection reflects an indefensible allegiance to the status quo. At the same time, the Fed raises a few valid concerns that could be addressed by a more comprehensive reform project. Safe money is desirable and attainable. The Fed should help foster and guide initiatives to provide safe money rather than resisting them.

Keywords: banking law, Federal Reserve, narrow banks, TNB, financial regulation, financial stability