Money and debt in the structure of payments

Green, Edward J.

Journal Article

Money and debt in the structure of payments

Abstract: In Scott Freeman?s (1996) model, payment system arrangements based on intermediated debt that is settled with money achieve higher welfare than does direct money payment. In a simplified version of Freeman?s model, welfare can be further improved and efficiency achieved by a monetary authority participating in a secondary market for debt or by a private intermediary using a common clearinghouse device. The analysis clarifies that ordinary private agents can assume the role of central bank or clearinghouse; no artificial agent, posited solely to play that role and endowed with special capabilities for it, is necessary. The institutional features required for a central bank or a clearinghouse to achieve efficiency, particularly features related to central bank independence, are discussed informally.

Keywords: Payment systems;

Status: Published in Monetary and Economic Studies (May 1997, vol. 15, no. 1, pp. 63–87)