Richard Murphy says:
January 14 2016 at 7:07 am
What I am saying is that time limited notes always mean that a transfer of funds between banks is possible in a crisis, but that the impact is limited
So, runs become irrelevant: the BoE will issue funds to make payment in the case of any bank and so the 2007 Northern Rock scenario need not arise. The animal spirits can be contained
But this is achieved without guarantees
And it is achieved in a way that has to reverse: the redepositing of funds has to take place, so the cash extended is almost as quickly cancelled and order re-established
There may be flaws in the idea: I am far from being able to see all consequences of a suggestion. But it would seem to me a way that avoids the need to formally guarantee deposits and which at the same time aids their orderly transfer if there was a crisis
The very fact that it does that probably mean that they may not be needed, whcih is the best outcome for all contingency plans
Nope, he still doesn’t get it.
If the bank is solvent but illiquid then the central bank will provide unlimited liquidity. And cashiers cheques etc will also work. So, we don’t need time limited money. If the bank is insolvent then the time limited money doesn’t work either.