Credit cards and interest rates: theory and institutional factors--a critical view

Abstract

When the government issues its own nonconvertible currency--also known as a flexible exchange rate policy--the central bank, as monopoly supplier of net reserves to its member banks, is the (exogenous) source of the risk-free yield curve. Furthermore, in the case of government member bank deposit insurance, the banking system is in no case reserve-constrained. In the context of Professor Stauffer's paper, this renders his entire analysis of available funds and demand for balances inapplicable. Only with a fixed exchange rate regime, such as a gold standard, a currency board, or government "peg" of some sort, are interest rates endogenous and subject to the forces Stauffer alludes to.Fed operations, interest rates, loanable funds theory, reserve accounting,