tag:blogger.com,1999:blog-6704573462403312459.post885715237835430451..comments2024-03-28T06:53:23.473-04:00Comments on Moneyness: Post-demonetization, the role of cash has been diminishedJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-6704573462403312459.post-9649365534294210222017-09-25T10:51:35.731-04:002017-09-25T10:51:35.731-04:00Well if the public wants more cash, this manifests...Well if the public wants more cash, this manifests itself as an increase in the supply of cash.<br /><br />If banks' demand for reserves increases, then the overnight rate will rise above the central bank's target. The central bank will meet that demand by creating new reserves in order to bring the rate back to target. <br /><br />So it depends what sort of money demand increases, reserves or cash. Either way, the central bank will accommodate that demand.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-30572029896000936152017-09-24T23:51:51.503-04:002017-09-24T23:51:51.503-04:00I meant that my understanding of what you are sayi...I meant that my understanding of what you are saying is if velocity falls/ MD rises, it would manifest as larger banks reserves at the Fed, rather than as larger holdings of cash or cash under mattresses, etc.Rajathttps://www.blogger.com/profile/11683681161752274152noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-35187317779918465152017-09-23T01:13:47.392-04:002017-09-23T01:13:47.392-04:00The graphic representations are not truly comparab...The graphic representations are not truly comparable. For example in the graph on Demonetisation the periods are 2 years vis-a-vis 9 months.In the case of cash demand the trend is for 17 year against only 9 months. No indicators have been shown of money moved to mutual funds and gold,which have risen dramatically. Anonymoushttps://www.blogger.com/profile/16338952791001625853noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-31640708795155593432017-09-22T22:49:26.321-04:002017-09-22T22:49:26.321-04:00Not sure I follow. What do you mean by "equiv...Not sure I follow. What do you mean by "equivalent of 'hoarding'/low velocity"?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-44487421480677977452017-09-22T22:47:20.426-04:002017-09-22T22:47:20.426-04:00Yep, it sells its treasury bonds for deposits.Yep, it sells its treasury bonds for deposits.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-30526882817877949132017-09-22T22:17:52.717-04:002017-09-22T22:17:52.717-04:00Less cash usage but also less flexibility in match...Less cash usage but also less flexibility in matching denominations and prices, I suspect. They are likely making a lot more change and packing thicker piles of paper. The transaction cost of paper, I call it, has gone up beyond the one time cost of replacing old denominations. It is a mild effect until you compared it to online shopping. All the goods in one spot and one click manages all the accounts directly. So whenever a central bank messes with the paper they move the bankers toward the newer technology faster.Matt Younghttps://www.blogger.com/profile/08404998406161097199noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-57752247495557070102017-09-22T11:33:04.412-04:002017-09-22T11:33:04.412-04:00By buy them back in sufficient quantity do you mea...By buy them back in sufficient quantity do you mean swap for treasury bonds, I can see that.Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-38173346872377811902017-09-21T22:06:55.494-04:002017-09-21T22:06:55.494-04:00Thanks JP. I presume then that banks' reserves...Thanks JP. I presume then that banks' reserves held at central banks represent the modern-day equivalent of 'hoarding'/low velocity?Rajathttps://www.blogger.com/profile/11683681161752274152noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-13521508867125447012017-09-21T12:16:54.679-04:002017-09-21T12:16:54.679-04:00I've written a bunch on this, but in general I...I've written a bunch on this, but in general I believe that central bank deposits/notes have value because--if they begin to lose their value--the central bank promises to buy them back in sufficient quantity to restore their purchasing power.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-57047123207808621482017-09-21T12:13:56.974-04:002017-09-21T12:13:56.974-04:00The hot potato view is correct. But central banks ...The hot potato view is correct. But central banks don't inject paper currency, they inject deposits, otherwise known as reserves or clearing balances.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-6293880487099906962017-09-21T07:08:03.617-04:002017-09-21T07:08:03.617-04:00Hi JP
You recently did a post where you set out y...Hi JP<br /><br />You recently did a post where you set out your thoughts on what gives the value to currency coins. Similarly, what is your current view on what gives worth to deposit balances at central banks and central bank notes.Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-65819804481231894342017-09-21T02:38:59.920-04:002017-09-21T02:38:59.920-04:00Thanks, this makes sense. But I have a question ab...Thanks, this makes sense. But I have a question about the following:<br /><br />"The old phrase "cranking up the printing presses" is a bad one because it implies that central bankers play an active role in deciding the quantity of paper money in the economy—they don't, their role is purely passive. At any point in time the stock of paper money in circulation has been determined by the decisions of the public."<br /><br />Isn't one view of how monetary policy works the 'hot potato effect' - the central bank injects cash into the economy via OMOs/QE that is in excess of desired balances, leading people to try to get rid of those excess balances by spending until the price level rises? Rajathttps://www.blogger.com/profile/11683681161752274152noreply@blogger.com