Monetary Policy in Economies with Little or No Money

The paper's arguments include: (1) Medium-of-exchange money will not disappear in the foreseeable future, although the quantity of base money may continue to decline. (2) In economies with very little money (e.g., no currency but bank settlement balances at the central bank), monetary policy will be conducted much as at present by activist adjustment of overnight interest rates. Operating procedures will be different, however, with payment of interest on reserves likely to become the norm. (3) In economies without any money there can be no monetary policy. The relevant notion of a general price level concerns some index of prices in terms of a medium of account. The liabilities of some official entity might serve as the medium of account, but there could be viable rivals if policy is poor. (4) A broad commodity-bundle monetary standard could be viable, even with a redemption medium, and there is scope for quantitative analysis of the properties of such a system. (5) The number of distinct national currencies may decline sharply, with the emergence of a small number of currency areas and floating exchange rates across these areas.