Money creation in the modern economy: an appraisal

Jacob Stevens*

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review


    This paper models a representative bank, and uses this model to explore the assumptions and implications of a selection of money-creation theories. It is shown that the money-supply process tends toward the logic of exogeneity as banks' fears about liquidity stress increases. At present, banks do not fear liquidity stress because central banks are operating under a floor system with a superabundance of reserves following unsterilized quantitative easing. Secondly, a role for a ‘central-bank digital currency’ is suggested as a useful complement to reserves policy in an economy with large or collusive banks.
    Original languageEnglish
    Pages (from-to)43-60
    Number of pages18
    JournalReview of Keynesian Economics
    Issue number1
    Publication statusPublished - 21 Jan 2021


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