Banknotes and Economic Growth
نویسنده
چکیده
Modern paper currency contributes little to productive investment. This shortcoming is not inherent to paper money. It stems from the fact that currency today is monopolistically supplied by public monetary authorities that are poor intermediaries. Commercial banknotes, in contrast, support efficient intermediation. The holding of private banknotes promotes economic growth just as the holding of private bank deposits does. We demonstrate this advantage in an endogenous growth model, and use the model to simulate, for a sample of developing countries, steady-state growth rate gains from various degrees of banknote deregulation. The simulated gains are large compared to those from conventional forms of financial liberalization.
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