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Making Money Work
How to Rewrite the Rules of Our Financial System
Matt Sekerke (Author), Steve H. Hanke (Author)
9781394257263, Wiley
Hardback, published 8 May 2025
368 pages
25.6 x 18.5 x 2.5 cm, 0.726 kg
The Global Financial Crisis broke the monetary system. Here's how to fix it. In Making Money Work: How to Rewrite the Rules of Our Financial System, Matt Sekerke and Steve H. Hanke deliver a rigorous and fascinating exploration of the monetary economy. You'll find a detailed and clear roadmap of how and why fiat money is created and destroyed, its connections to the broader economy, and the objective mechanisms that underwrite and maintain its value. In their exploration, Sekerke and Hanke solve many problems and puzzles and shed light on several important questions: Sekerke and Hanke trace important post-crisis policy developments and sketch the broad strokes of a new operating model that would restore the performance of the monetary system and make better use of aggregate savings: An engaging and incisive guide to the global systems of money and banking, Making Money Work is destined to become a sought-after classic for bankers, finance professionals, policymakers, regulators, academics, and laypeople with an interest in money and banking.
Foreword xvii Introduction xix Part One: How Money Works: Institutions of the Monetary Economy 1 Chapter 1: Rethinking Monetary Economics 3 Macroeconomics Without Money 4 Broad Money and the Banking System 5 From Interest-rate Policy to Quantity-based Policy 7 Neutral Monetary Policy 9 Productive Capital Markets 9 Chapter 2: Fiat Money Systems 13 Specifying Money So That Money Matters 14 Money Is Essentially an Abstract Measure of Value 14 Money Consists in a Claim or Credit 16 The State, or an Authority, Is an Essential Basis for Money 18 Money Is Not Neutral in the Economic Process 19 Fiat Monetary Standards 21 Metallic Standards 21 Standards After Metallic Standards 23 Foreign Exchange and the Quest for an International Monetary Standard 25 Revisiting the Foundations of Monetary Economics 27 Chapter 3: The Institutional Structure of the Monetary Economy 35 The Government Sector 36 The Fiscal Authority 36 The Monetary Authority 38 The Consolidated Government 39 The Commercial Banking System 41 Deposit Creation by Individual Banks 43 Fallacious Accounts of Bank Funding and Deposit Creation 45 Financial Intermediaries 48 Asset Managers 49 Money Market Funds 50 Asset-backed Securities 51 Consolidated Financial Intermediation Sector 53 The Nonbank Public: Nonfinancial Firms and Households 54 Nonfinancial Business 54 Households 56 The Rest of the World 57 The Money Supply and Its Connections to the Nonbank Public 58 The System of Claims as a Foundation for Monetary Theory 60 Chapter 4: Financial Intermediation in the Capital Markets 67 Savings and Investment: The Standard Macroeconomic Story 68 Savings and Investment: The Microeconomic Foundations 70 The NPV Criterion 71 Information Asymmetry 72 Equity Rationing 74 Revising the Growth Model 75 Financial Intermediation and Project Stratification 75 Chapter 5: Credit Creation by the Commercial Banking System 81 Savings and Investment: Expanding the Standard Story 82 The Set of Bankable Projects 85 Maturity Transformation and Bank Risk Management 88 Credit Risk Management 89 Interest Rate Risk Management 91 Liquidity Risk Management 93 Economic Growth with Credit and Capital Markets 96 Chapter 6: Universal Banks and the Banking–Capital Markets Boundary 103 Complementarities and Competition in Banking and Capital Markets Business 106 Risk Transformation in Securitization Markets 108 Risk Transfer Contracts 111 Bank Lending to Nonbank Financial Institutions 114 Risk Management in Universal Banks 116 Part Two: A Broader View of Monetary Policy 121 Chapter 7: Analytical Frameworks and Basic Monetary Facts 129 The Equation of Exchange and the Demand for Money 130 The Cambridge Equation 132 The Equation of Exchange in Economic Theory 132 Divisia Broad Money 135 Constructing Divisia Indices 136 Comparing Divisia and Simple Sum Aggregates 138 Sources of Divisia Money 141 Divisia Money by Sectors and Strata 144 Evolution of Bank Balance Sheets from 1945 to 2023 149 Broad Trends 150 Finer Details 153 Bank Lending Versus Capital Market Finance 156 Three Big Questions 163 Chapter 8: The Regulation of Universal Banks 173 Bank Capital Regulation 176 Defining Bank Capital 177 Capital Adequacy Before the Basel Era 179 Capital Adequacy After the First Basel Accord 180 The 1996 Market Risk Amendment 182 The Monetary Policy Impact of the Basel I Era 183 The Problem of the Trading Book 184 Regulatory Capital Under Basel III 187 Bank Liquidity Regulation 189 The Liquidity Coverage Ratio 190 The Net Stable Funding Ratio 194 Summing Up 195 Chapter 9: Monetary Aspects of the Government Budget 203 Stable Government Debt Dynamics and the Monetary Standard 205 Stability Conditions 205 Deposit Insurance 208 Fiscal Influences on Aggregate Conditions 209 Central Bank Transactions in Government Obligations 210 Government-sponsored Enterprises and Financial Agencies 211 Monetary Consequences of GSE Guarantees 213 The Federal Home Loan Bank System 214 Crowding-out in Capital Markets 216 The Disaggregated Budget Arithmetic 217 Some Examples of Sector-level Fiscal Influence 219 Sectoral Impact of the Fiscal Impulse from Quantitative Easing 220 Appendix 9.A Propagation of a Fiscal Impulse 223 Chapter 10: Central Bank Policy 231 Central Bank Policy Implementation Before and After the GFC 233 Quantitative Easing and Its Consequences 234 Reestablishing Control Over Short-term Interest Rates 237 The Path to Normalization and the COVID Interventions 238 Structural Changes in the Reserve Market 242 Interest Rate Policy Transmission and Asset Prices 245 An Unintended Period of Steady Broad Money Growth 247 Prospects for Future Interest Rate Policy 251 Part Three: Rewriting the Rules of Our Financial System 259 Chapter 11: Defining Neutral Monetary Policy 261 Neutral Monetary Policy 262 Defining Neutrality 264 Why Neutrality? 266 Efficient Use of Global Savings 267 Formation of Investable Projects 268 Formation of Bankable Projects 269 Chapter 12: Universal Banks in the Monetary System 271 Competition in Commercial Banking 273 Competition in Capital Markets 276 Competition Within Universal Banks 277 Competition Versus Financial Stability 278 Governance 279 Regulation 281 Chapter 13: The Base of Investable and Bankable Projects 285 Of Savings Gluts and Safe Assets 286 Shifts in the Balance of Domestic Saving 287 Safe Assets as a Sink for the Saving Glut 288 Après le deluge 289 The Pathological Character of Land and Real Estate 290 Investable Projects Involving Land 290 The Bankability of Investable Projects Involving Land 292 Exposure of the Banking System to Land Values 294 Is Technology Making Fewer Projects Bankable? 296 How to Expand the Base 297 Chapter 14: Rewriting the Rules 303 Toward a New Central Bank Operating Model 304 Errors of the Old Monetarism 305 Targeting Divisia Money 306 Reserve Management 309 Standing Facilities 309 Monitoring the Distributional Impact of Broad Money Growth 311 Fixing Bank Regulation 311 Splitting the Banking Book and the Trading Book 312 Neutral Credit Risk Weights 314 Liquidity Risk Management 318 Underwriting, Pricing, and Innovation 318 Using Savings More Efficiently 320 Reducing Government’s Footprint in the Capital Markets 320 Unwinding the Federal Reserve Balance Sheet 322 Unfinished Business 324 Appendix 14.A Neutral Credit Risk Weights 326 About the Authors 331 Index 333
Subject Areas: Business & management [KJ]
