TY - JOUR
T1 - Going beyond monetary constitutions
T2 - The congruence of money and finance
AU - Hendrickson, Joshua R.
AU - Salter, Alexander W.
N1 - Publisher Copyright:
© 2017 Board of Trustees of the University of Illinois
Copyright:
Copyright 2018 Elsevier B.V., All rights reserved.
PY - 2018/8
Y1 - 2018/8
N2 - We extend the literature on ‘monetary constitutions’ by arguing that binding rules must go beyond specifying the behavior of the monetary authority. Instead, a genuine monetary constitution must also be a financial constitution: it must take into account the natural and evolved links between money and banking, treating them as a single institution. We present a unified conception of money and banking, show how modern monetary institutions have severed the traditional links between money and banking, and discuss how macroeconomic stability is an unintended result of a self-enforcing constitution for the money-and-banking system. Finally, we conclude by discussing the implications of our argument for re-orienting the conversation on post-financial crisis stability towards genuinely institutional solutions.
AB - We extend the literature on ‘monetary constitutions’ by arguing that binding rules must go beyond specifying the behavior of the monetary authority. Instead, a genuine monetary constitution must also be a financial constitution: it must take into account the natural and evolved links between money and banking, treating them as a single institution. We present a unified conception of money and banking, show how modern monetary institutions have severed the traditional links between money and banking, and discuss how macroeconomic stability is an unintended result of a self-enforcing constitution for the money-and-banking system. Finally, we conclude by discussing the implications of our argument for re-orienting the conversation on post-financial crisis stability towards genuinely institutional solutions.
KW - Commodity standard
KW - Depositors
KW - Extended liability
KW - Financial constitution
KW - Macroprudential policy
KW - Monetary constitution
UR - http://www.scopus.com/inward/record.url?scp=85036590484&partnerID=8YFLogxK
U2 - 10.1016/j.qref.2017.11.013
DO - 10.1016/j.qref.2017.11.013
M3 - Article
AN - SCOPUS:85036590484
VL - 69
SP - 22
EP - 28
JO - Quarterly Review of Economics and Finance
JF - Quarterly Review of Economics and Finance
SN - 1062-9769
ER -