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Central Banking without Central Bank Money

Given the rapidly declining demand for central bank reserves and their gradual replacement in wholesale payments by alternative forms of money—clearinghouse moneyand treasury money—this paper discusses whether the complete extinction of base money could undermine monetary control. It argues that such concerns are misplaced since central banks can target interest rates and inflation even in the absence of base money. The paper explores implications for current and future central banking, including monetary and foreign exchange operations, lender of last resort, coordination between public debt and monetary management, and design of operating rules in currency boards.

In the textbook monetary paradigm, central banks influence interest rates through
controlling monetary aggregates, which are linked to the supply of central bank
liabilities through a money multiplier. Hence, central banks' ability to control the ...