Re: Sweden - Monetary Policy

[Bruce McFarling <ecbm@xxxxxxxxxxxxxxxxxxx>]

On Mon, 30 Apr 2001 09:11:47 -0700,
John O'Donnell <jackodonnell@xxxxxxxx> wrote:

>Sort of. This is one of the many problems introduced by poor
>terminology.

>Most "money supply" aggregates include various measures of
>financial assets, most prominently demand deposits at
>commercial banks. The extension of intermediated credit by
>commercial banks does increase the amount of demand deposits
>but these deposits are better described as "money
>substitutes" than money itself.

Provided that I can make payments up to the full amount of
money I have in deposit, it makes no difference to me when
making a cash purchase whether I make a cash purchase with
a bill withdrawn from an ATM, or with a direct EFTPOS
transaction, now does it?

And is a magnitude of transaction where there is essentially
NO cash payments being made if the transaction is legal.

If we go back to the days of overnight clearances in Australia,
banks simply did NOT have to have reserves sufficient to meet
all payment demands by their customers ... they simply had
to have reserves to make the net settlement.  And now, with
immediate settlement, BANKS have the right to tap reserves
on demand without interest until the end of the day, since
without this right the payments system could be caught in a
settlement log jam.

This is a SYSTEM -- an organised collection of elements -- and
it functions to ensure that deposit money WORKS as money in
all respects.  Something that works as money in all respects
is money.  Once you hand a currency note to a bank, the note
becomes an asset, and is no longer available to make payments
in the economy, and your deposit IS money, available to make
payments.

And to the extent that there is discrimination between deposits
and notes as money, the balance of the discrimination is against
notes, and in favour of deposits.  That is, there is
discrimination in favour of notes for some small payments, and
discrimination in favour of deposits for large payments, and
the large payments would sum up to a larger total than small
payments do.


Virtually,

Bruce McFarling, Shortland, NSW
ecbm@xxxxxxxxxxxxxxxxxxx