Economics, Econometrics and Finance
3 years ago

Monetary policy changes could stop fiat money circulation, impacting price levels.

SSRN Electronic Journal
Liquidity Constraint of Banks and Non-Neutrality of Monetary Policy
Tianxi Wang

Paper Summary

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The article explores how changes in monetary policy affect banks' ability to manage their money. It shows that when banks have more freedom to use their money, the impact of monetary policy is different compared to when they are restricted. The use of digital payments can increase prices by making it less likely for people to withdraw cash. If cash withdrawals stop completely, fiat money will no longer circulate.