On the Spontaneous Freezing of the Monetary Base

The report looks at the issue of if markets with laissez-faire could protect the economy from poor govt money. A few latest suggestions give preference to freezing the monetary base, by abandoning central bank operations. This calls for effective engagement by the monetary regulators. In contrast, the network externality makes a switch from central-bank currency difficult. This document looks into how this problem can be addressed and the monetary base be spontaneously frozen, by a method where commercial banks issue liabilities that are redeemable only into central bank notes issued before a certain date…

The intention of this article is to present an illustration of exactly how this can be done, in a process where the monetary base is frozen by the spontaneous activities of the banking sector. The main factor behind this development is that a few banks begin to issue notes and deposits which are redeemable only into central-bank notes which have been issued prior to a certain date…

Source: The Economic Research Institute

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