Money: A Market Microstructure Approach

Ananth Madhavan; Ananth Madhavan; Armen A Alchian; Bennett T Mccallum; Charles A E Goodhart; Eugene F Fama; Eugene F Fama; European Central; F H Capie; F X Browne; F X Browne; Fischer Black; Geoffrey P Miller; Hans R Stoll; Hans R Stoll; Hans R Stoll; Hans-Michael Trautwein; Harold Demsetz; J�rg Niehans; J�rg Niehans; Karl Brunner; Kevin D Hoover; Kojo Menyah; Lawrence H White; Lawrence H White; Lawrence R Glosten; Lawrence R Glosten; Leland B Yeager; Leland B Yeager; Leland B Yeager; Malte Krueger; Maureen O&apos; Mervyn King; Nobuhiro Kiyotaki; Peter Howitt; Richard Roll; Robert E Hall; Robert E Hall; Robert E Hall; Robert L Greenfield; Robert L Greenfield; Sanford J Grossman; Thomas Ho; Tyler Cowen; Tyler Cowen; W Woolsey; Walter Bagehot

Abstract

The current discussion about the future of the financial system draws heavily on a set of theories known as the ‘New Monetary Economics’. The New Monetary Economics predicts that deregulation and financial innovation will lead to a moneyless world. This paper uses a market microstructure approach to show that a common medium of exchange that serves as unit of account will remain a necessary instrument to reduce transaction costs. This finding is supported by empirical evidence from foreign exchange markets